Which of the Following Statements Concerning Stabilization Policy Is Correct

question 16

Multiple Choice

Which of the following statements concerning stabilization policy is correct?

• A)Increasing government spending during an economic boom would be an example of a stabilization policy.
• B)Increasing taxes during a recession would be an example of a stabilization policy.
• C)New Keynesian economists are skeptical of the value of stabilization policies.
• D)Increasing the money supply during a recession is an example of a stabilization policy.

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Definitions:

Real Wages

Wages that have been adjusted for inflation, reflecting the purchasing power of the income.

Labor Supply Curve

A graphical representation showing the relationship between the wage rate and the quantity of labor workers are willing to offer at that wage rate.

Substitution Effect

The change in consumption patterns due to a change in the relative prices of goods, leading consumers to substitute one good for another that has become relatively cheaper.

Income Effect

Modifications in the earnings of individuals or the broader economy and their effects on the quantity of goods or services demanded.