Those who favor an active approach to policy believe that:
a. discretionary monetary policy cannot be used to help the economy since monetary policy lags are long.
b. discretionary fiscal policy cannot be used to help the economy since fiscal policy lags are long.
c. lags associated with implementing policies are too long and unstable for discretionary policy to be effective.
d. despite the lags involved, implementing discretionary policy is preferable to inaction.
e. the discretionary fiscal policy cannot be used to help the economy since it leads to inflation.
Question 2
Which of the following is a problem associated with an active policy such as a stimulus package?
a. Increase in the unemployment rate
b. Increase in inflationary pressure
c. Increase in the market interest rate
d. Decrease in the market interest rate
e. Decrease in money demand
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The fiscal policy to counter an inflationary gap is a(n)