Economic analysis suggests that countercyclical macro-policy will
A) be difficult to time properly because of uncertainty about the future direction of the economy.
B) be difficult to implement because we do not know whether monetary policy is transmitted through the interest rate, or whether it affects aggregate demand directly.
C) reduce the natural rate of unemployment when macro-policy is persistently expansionary.
D) help reduce economic instability if, and only if, we are willing to tolerate double-digit inflation.

Question

Quizplus · Accepted Answer

Countercyclical macro-policy involves adjusting government spending, taxation, and/or monetary policy to counter the natural ups and downs of the business cycle. However, predicting the direction of the economy is not an exact science, and it can be difficult to time policy interventions properly. This is due to uncertainty about the future direction of the economy, which can make it challenging to determine the appropriate timing and magnitude of policy interventions.

Economic Analysis Suggests That Countercyclical Macro-Policy Will