The government has the ability to influence the level of output in the short run

Question

The government has the ability to influence the level of output in the short run using monetary and fiscal policy. There is some disagreement as to whether the government should attempt to stabilize the economy. Which of the following statements about the debate over stabilization policy are correct?

a.Advocates of active stabilization believe that implementation lags for fiscal and monetary policy do not exist.

b.Advocates of active stabilization policy believe that the government can adjust monetary and fiscal policy to counteract waves of excessive optimism and pessimism among consumers and businesses.

c.Advocates of active stabilization believe that automatic stabilizers have no effect on aggregate demand

d.Opponents of active stabilization believe that active fiscal and monetary policies have no effect on aggregate demand

Explanation / Answer

While the Advocates of active stabilization policy believe that the government can adjust monetary and fiscal policy to counteract waves of excessive optimism and pessimism among consumers and businesses, opponents of active stabilization believe that active fiscal and monetary policies have no effect on aggregate demand.

Hence the choices is B.

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