Question

Which of the following are arguments in favor of active stabilization policy by the government? Check all that apply. a) Businesses make investment plans many months in advance. b) Changes in government purchases and taxation must be passed by both houses of Congress and signed by the president. c) The current tax system acts as an automatic stabilizer. d) Shifts in aggregate demand are often the result of waves of pessimism or optimism among consumers and businesses.

Answer 1

Answer:

D) Shifts in aggregate demand are often the result of waves of pessimism or optimism among consumers and businesses.

Explanation:

The Federal Reserve (FED) can respond to excessive pessimism among consumers and businesses by expanding the money supply and lowering interest rates. To deal with excessive optimism they can do the opposite, they can shrink the money supply and increase the interest rate.