The government has the ability to influence the level of output in the short run using monetary and fiscal policy. There is some disagreement as to whether the government should attempt to stabilize the economy.
Which of the following are arguments in favour of active stabilization policy by the government? Check all that apply.
A. The current tax system acts as an automatic stabilizer.
B. Shifts in aggregate demand are often the result of waves of pessimism or optimism among consumers and businesses.
C. Businesses make investment plans many months in advance.
D. The central bank can effectively respond to excessive pessimism by expanding the money supply and lowering interest rates.
Which of the following are examples of automatic stabilizers? Check all that apply.
A. Unemployment insurance benefits
B. Corporate income taxes
C. Personal income taxes
