Why Should Policymakers NOT Try to Stabilize the Economy

question 98

Multiple Choice

Why should policymakers NOT try to stabilize the economy?

• A)because recessions represent a waste of resources
• B)because pessimism on the part of households and firms may become a self-fulfilling prophecy
• C)because "leaning against the wind" requires policymakers to increase aggregate demand in recessions and reduce aggregate demand in booms
• D)because macroeconomic theory is not developed sufficiently to show policymakers how to change aggregate demand

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Definitions:

Factory Overhead

Indirect costs related to manufacturing, such as utilities, maintenance, and salaries of supervisory personnel not directly involved in production.

Cost

The amount of money that needs to be spent to purchase, produce, or maintain something.

Benefit

An advantage or profit gained from something, often referring to employment perks beyond salary, such as health insurance.

Factory Overhead Cost

Expenses associated with operating a factory that can't be directly linked to a specific product, including costs like utilities and maintenance.