Question

Which of the following are arguments in favor of active stabilization policy by the government? check all that apply. changes in government purchases and taxation must be passed by both houses of congress and signed by the president. shifts in aggregate demand are often the result of waves of pessimism or optimism among consumers and businesses. the fed can effectively respond to excessive pessimism by expanding the money supply and lowering interest rates. the current tax system acts as an automatic stabilizer?

Answer 1

Shifts in aggregate demand are often the result of waves of pessimism or optimism among consumers and businesses is an argument in favor of active stabilization policy by the government. The active stabilization policy measured to help introduce a way to stabilize an economy. There are many ways to achieve this but two distinct ways to follow.

Answer 2

• shifts in aggregate demand are often the result of waves of pessimism or optimism among consumers and businesses.
• the Fed can effectively respond to excessive pessimism by expanding the money supply and lowering interest rates.

Step-by-step explanation:

Economic pessimism or optimism basically represent the general feeling that businesses and citizens of a country have about where the economy is heading. If the general feeling is that the economy is strong, there is said to be a general feeling of economic optimism. If the people and businesses believe that the economy will enter a recessive period, then there is a general feeling of economic pessimism.

The problem with economic moods is that they tend to be self fulfilling prophecies. If most people and businesses have a pessimistic view of the economy, they will start to prepare for a recession and the first thing they do is cut spending and increase savings. Since the largest component of the GDP is consumption, if spending decreases, then the GDP will decrease. By increasing the money supply and lowering interest rates the FED will try to increase consumption.