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:

Stock Dividend

A distribution of extra shares as a dividend, rather than distributing cash.

Stockholder Wealth

The total value of a shareholder's investment in a company, typically measured by the market value of shares held.

Flotation Costs

Expenses incurred by a company when it issues new securities, including underwriting fees and legal expenses.

Cash Dividends

Profits given to stockholders by a corporation, typically as a way to distribute earnings.