The Great Moderation consensus is that:
A) fiscal policy should play the main role in stabilization policy.
B) monetary policy should play the main role in stabilization policy.
C) automatic stabilizers should be the only type of policy used.
D) government budgets should always be balanced.

Question

Quizplus · Accepted Answer

The Great Moderation consensus is that monetary policy should play the main role in stabilization policy. This is based on the belief that central banks have more flexibility and can respond more quickly to changes in the economy, whereas fiscal policy can be slower and more politically contentious. The preference for monetary policy is also reflected in the fact that central bank independence has been an important feature of many economies during the Great Moderation period.

The Great Moderation Consensus Is That