Question

When policy makers are constantly shifting back and forth between expansionary and restrictive monetary policy, this is most likely to

a. promote economic stability and stimulate employment.
b. keep the general level of prices relatively stable because the periods of restrictive policy will just offset the periods of expansion.
c. help promote economic stability because changes in monetary policy can be counted on to exert a predictable impact on the economy quickly.
d. promote instability because the time lags of monetary policy are long and unpredictable.

Answer 1

The correct answer is option d.

Step-by-step explanation:

When policy makers are constantly shifting back and forth between expansionary and restrictive monetary policy. This will create a sense of instability in the economy. This is because the monetary policy involves long and unpredictable time lags.

So when government changes a policy from contractionary to expansionary policy the economy will take time to adapt to it. A change in policy again will cause instability.