Why should policymakers try to stabilize the economy?
A)because economic forecasting is highly imprecise
B)because long lags may cause stabilization policies to have an opposite effect
C)because monetary policy affects aggregate demand by changing interest rates
D)because fiscal policy must go through a long political process

Question

Quizplus · Accepted Answer

Policymakers should try to stabilize the economy because monetary policy, which involves changing interest rates, affects aggregate demand. By stabilizing the economy, policymakers can work to promote economic growth, prevent recessions, and promote the stability of the financial system. However, policymakers must be careful in implementing stabilization policies, as long lags may cause policies to have an opposite effect. Additionally, economic forecasting is often imprecise, making it difficult to predict the impact of stabilization policies. Fiscal policy, which involves government spending and taxation, must also go through a long political process, making it less responsive to immediate changes in economic conditions.

Why Should Policymakers Try to Stabilize the Economy