2. Which of the following events would strengthen the arguments for using an act

Question

2. Which of the following events would strengthen the arguments for using an active government stabilization policy, and which would weaken the arguments for active government policy? Explain why in each case.

a. Structural changes make wages adjust more quickly than before in response to the level of unemployment in the economy.

b. New statistical methods improve the accuracy of economic forecasts.

c. In the next presidential election year, one party wins control of both houses of Congress and of the Presidency.

Explanation / Answer

strengthen the arguments for using an active government stabilization policy:

a. Structural changes make wages adjust more quickly than before in response to the level of unemployment in the economy: Government are introducing reforms to improve the economic environment. New reforms will generate employment in the system and will likely to slash unemployment.

b. New statistical methods improve the accuracy of economic forecasts: As in India, changes in base year and new methodology improved the GDP number.

weaken the arguments for active government policy

c. In the next presidential election year, one party wins control of both houses of Congress and of the Presidency: It shows that government policies are not very effective that they are not sure about their victory in the next election as well.

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