Those Who Favor Active Use of Monetary and Fiscal Policy

question 157

Multiple Choice

Those who favor active use of monetary and fiscal policy believe that

• A) the M1 money supply should be increased at a steady rate annually.
• B) taxes should be increased during a recession in order to balance the federal budget.
• C) the economy's self-correcting mechanism, if not stifled by perverse policies, will prevent prolonged periods of high unemployment.
• D) discretionary changes in macroeconomic policy can help smooth the business cycle of a market economy.

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Definitions:

Valuation

The process of determining the current worth of an asset or a company, often used in investment analysis.

Financial Intermediaries

Institutions that act as middlemen in financial transactions, assisting in channeling funds from savers to borrowers, such as banks, insurance companies, and pension funds.

Commercial Banks

Financial institutions that accept deposits, offer checking account services, and make loans to individuals and businesses.

Insurance Companies

Insurance companies are financial institutions that provide coverage by pooling risks and compensating covered losses in areas such as life, health, and property.