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? Check all that apply. 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. Advocates of active stabilization believe that implementation lags for fiscal and monetary policy do not exist. Opponents of active stabilization believe that active fiscal and monetary policies have no effect on aggregate demand. Opponents of active stabilization policy believe that significant time lags in both fiscal and monetary policy often exacerbate economic fluctuations. Which of the following are examples of automatic stabilizers? Check all that apply.

Explanation / Answer

Answer: option 1.

Speculation causes bubbles.Thus option (1) only deals with an argument that government policies can be effective.

The argument is not whether such policies have no effect on aggregate demand or whether time lag exists or whether automatic stabilisers have any effect.

All of the above are examples of automatic stabilisers.All of them stabilise the economic cycles without explicit government intervention.

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