Which policy would stabilization policy activists support when the economy is experiencing unemployment above the natural rate?
A) a decrease in the money supply
B) a reduction in tax rates
C) a decrease in government purchases
D) an increase in taxes

Question

Quizplus · Accepted Answer

Stabilization policy activists are concerned with keeping the economy close to full employment, and therefore would support policies to reduce unemployment when it is above the natural rate. Of the options given, a reduction in tax rates would be the best choice as it would increase disposable income and aggregate demand, leading to an increase in production and employment. A decrease in the money supply or government purchases would have a contractionary effect on the economy and could worsen unemployment, while an increase in taxes would reduce disposable income and aggregate demand, also worsening unemployment.

Which Policy Would Stabilization Policy Activists Support When the Economy