In practice,one of the principal problems with aggregate demand management is that
A)changes in aggregate demand do not affect output.
B)changes in aggregate demand cannot reduce unemployment.
C)changes in aggregate demand are highly inflationary.
D)stabilization policies could increase aggregate demand too much and at the wrong times.

Question

Quizplus · Accepted Answer

Stabilization policies, which aim to manage aggregate demand, could lead to an excessive increase in aggregate demand at the wrong time, causing inflationary pressures. This problem is known as the timing problem or the lags problem, and it can be attributed to the difficulties of accurately predicting the future state of the economy and the complex nature of the transmission channels of fiscal and monetary policies. Therefore, policymakers need to carefully calibrate their actions and take into consideration not only the short-term effects but also the long-term sustainability of the policy measures.

In Practice,one of the Principal Problems with Aggregate Demand Management