Policymakers' use of stabilization policy to eliminate output gaps is more appropriate when an economy self corrects very ____ and when the output gap is very ____.
A) rapidly; large
B) rapidly; small
C) slowly; large
D) slowly; small

Question

Quizplus · Accepted Answer

If self- correction is slow and when the output gap is very large, then active stabilization policies are probably justified in most cases. However, if the economy returns to full employment quickly, then attempts by policymakers to stabilize spending and output may end up doing more harm than good.

Policymakers' Use of Stabilization Policy to Eliminate Output Gaps Is