Fine tuning is a policy in which policy makers:
A) try to maintain a given path of the real exchange rate.
B) try to minimise the deviations of actual output from the natural level of output.
C) try to maintain a given rate of growth in the nominal money supply.
D) try to achieve zero inflation.
E) try to minimise fluctuations in interest rates.

Question

Quizplus · Accepted Answer

Fine tuning is a macroeconomic policy aimed at reducing deviations of actual output from the natural level of output. It involves making small adjustments in fiscal and monetary policies to stabilize the economy and prevent it from deviating too far from its potential output level. Choice A is incorrect because maintaining a given path of the real exchange rate is a policy aimed at achieving exchange rate stability. Choice C is incorrect because maintaining a given rate of growth in the nominal money supply is a policy aimed at achieving monetary stability. Choice D is incorrect because achieving zero inflation is a policy aimed at price stability. Choice E is incorrect because minimizing fluctuations in interest rates is a policy aimed at achieving interest rate stability.

Fine Tuning Is a Policy in Which Policy Makers