Why Should Policymakers NOT Try to Stabilize the Economy

question 38

Multiple Choice

Why should policymakers NOT try to stabilize the economy?

• A) Recessions represent a waste of resources.
• B) Pessimism on the part of households and firms may become a self-fulfilling prophecy.
• C) "Leaning against the wind" requires policymakers to increase aggregate demand in recessions and reduce aggregate demand in booms.
• D) Economic conditions can easily change between the time when a policy action begins and when it takes effect.

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Definitions:

Cartel Arrangement

An agreement among competing firms in the same industry to control prices, limit output, or divide markets, in order to maximize profits collectively.

Manufacturing Plant

A facility that is equipped with machinery and staff for the purpose of producing goods on a large scale.

Cost Function

A mathematical relationship that describes how the total cost of production changes with varying levels of output.

Cartel Arrangement

An agreement between competing firms or countries to control prices, limit supply, or restrain competition in a particular market.