Those Who Favor a Passive Approach to Policy Believe That

question 125

Multiple Choice

Those who favor a passive approach to policy believe that _____

• A) discretionary monetary policy can be used to help an economy since monetary policy lags are short.
• B) discretionary fiscal policy can be used to help an economy since fiscal policy lags are short.
• C) lags associated with implementing policies are too long and unstable for discretionary policy to be effective.
• D) despite the lags involved, implementing discretionary policy is preferable to inaction.
• E) automatic stabilizers cannot be used to help an economy since monetary policy lags are short.

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Definitions:

Diminishing Returns

Diminishing returns is an economic principle stating that as more investments or resources are added to a production process, the incremental gain in output will eventually decrease if all other factors remain constant.

Disguised Unemployment

Situations where more people are employed in a task or job than is necessary for its completion, leading to inefficiency.

Capital Goods

Long-term assets such as buildings, machinery, and equipment purchased by businesses to produce goods and services.

Terms of Trade

The ratio of an index of a country's export prices to an index of its import prices, used to measure the relative trading advantage or disadvantage.