Consider Policymakers Who Favour an Active Approach to Policy

question 30

Multiple Choice

Consider policymakers who favour an active approach to policy.Which of the following is one of their beliefs?  

• A) Discretionary monetary policy CANNOT be used to help the economy because monetary policy lags are long. 
• B) Discretionary fiscal policy CANNOT be used to help the economy because fiscal policy lags are long. 
• 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.

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Definitions:

General Equilibrium

A state in an economy where all markets are in equilibrium simultaneously, and the decisions of consumers and producers are perfectly coordinated.

Pareto Efficiency

An economic state where resources are allocated in a way that it is impossible to make one individual better off without making another individual worse off.

Simultaneous Equilibrium

A situation in which multiple markets or economic variables reach equilibrium at the same time, with interdependencies considered.

Technological Change

The improvement or innovation in technology that increases productivity and may lead to new products or ways of doing things.