The Recommendation to Use Monetary Policy to Stabilize the Economy

question 14

Multiple Choice

The recommendation to use monetary policy to stabilize the economy and use fiscal policy only when monetary policy is ineffective is consistent with _____ macroeconomics.

• A) classical
• B) Keynesian
• C) monetarist
• D) Great Moderation consensus

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Definitions:

Nonsystematic Risk

The risk associated with a specific issuer of a security, industry, or sector, which can be mitigated through diversification.

Systematic Risk

The risk inherent to the entire market or entire market segment, which cannot be mitigated through diversification.

Purely Passive Strategy

An investment strategy that involves no active management and typically focuses on investing in index funds to replicate market returns.

Mean-Variance Efficient

A portfolio strategy that aims to minimize risk for a given level of expected return, or equivalently, maximize return for a given level of risk.