The Inability of the Government to Stabilize the Economy in the 1970s

question 43

Multiple Choice

The inability of the government to stabilize the economy in the 1970s when real GDP has fallen, but inflation has remained high, led Robert Lucas to challenge the Keynesian macroeconomic policy prescriptions. Which of the following is the main tenet of his argument?

• A) Active stabilization policies tend to be destabilizing because of the long policy lags and consequently, slow down the economy's self correction.
• B) There is no role for active stabilization policies because they do not take into account rational choices by individuals; failure to do so generally cancels the impact of fiscal and monetary policies.
• C) Individuals respond in predictable ways to their changing economic environment; active stabilization interferes with people's ability to respond to changing economic conditions.
• D) The economy is inherently stable and any role for stabilization policy should be limited to those that affect long-run aggregate supply to promote economic growth and not aggregate demand.

Recognize the role of different types of neurons (e.g., sensory, motor, interneurons) in conveying information.

Grasp the mechanisms underlying the initiation and propagation of action potentials.

Comprehend the importance of neuroglia, including astrocytes and Schwann cells, in maintaining neural function.

Describe how drugs and other substances can affect neuronal function and neurotransmitter action.

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Definitions:

Portfolio Beta

A measure of the overall market risk or volatility of an investment portfolio relative to the market as a whole.

Common Stocks

Equity securities representing ownership shares in a corporation, giving holders voting rights and a claim on profits.

Risk-Free Rate

The theoretical return on an investment with no risk of financial loss, typically represented by the yield on government securities.

Required Return

Required return is the minimum expected return by investors for investing in a stock, bond, or another security, considering its risk.