Consider policymakers who favour a passive approach to policy.Which of the following do these policymakers believe?
A) Discretionary monetary policy can be used to help the economy because monetary policy lags are short.
B) Discretionary fiscal policy can be used to help the economy because fiscal policy lags are short.
C) Lags associated with implementing policies are too long and unstable for discretionary policy to be effective.
D) Despite the lags involved, implementing discretionary policy is preferable to inaction.

Question

Consider policymakers who favour a passive approach to policy.Which of the following do these policymakers believe?  
A) Discretionary monetary policy can be used to help the economy because monetary policy lags are short. 
B) Discretionary fiscal policy can be used to help the economy because fiscal policy lags are short. 
C) Lags associated with implementing policies are too long and unstable for discretionary policy to be effective. 
D) Despite the lags involved, implementing discretionary policy is preferable to inaction.

Quizplus · Accepted Answer

Policymakers who favour a passive approach to policy believe that lags associated with implementing policies are too long and unstable for discretionary policy to be effective. They prefer to let the economy self-regulate without intervention. Thus, option C is the most appropriate choice. Options A and B suggest that policymakers who favour a passive approach believe in the effectiveness of discretionary policies, which is incorrect. Option D is also incorrect because passive policymakers do not believe that implementing discretionary policy is preferable to inaction.

Consider Policymakers Who Favour a Passive Approach to Policy