Active stabilization policy may actually destabilize the economy since policy makers
A)do not know the exact length of policy lags
B)often do not know whether a disturbance is permanent or transitory
C)base their decisions on incomplete information about the economy
D)cannot take into account how individuals' expectations are affected by policy changes
E)all of the above

Question

Quizplus · Accepted Answer

All of the options listed (A, B, C, and D) are reasons why active stabilization policies may inadvertently destabilize the economy. Policymakers face uncertainty and often lack complete information about the economy and its responses to policy changes, leading to potential unintended consequences. For example, policy actions may result in unexpected inflation or recession due to lagged effects or shifts in expectations.

Active Stabilization Policy May Actually Destabilize the Economy Since Policy