The parable of Riding a Switchback suggest that stabilizing policy ?
Correct answer: C. is stimulating or contracting the economy at the wrong times
- A. is not sufficiently stimulating or contracting the economy at any time
- B. is effective
- C. is stimulating or contracting the economy at the wrong times
- D. is desirable
Explanation
The switchback analogy refers to policy effects arriving after economic conditions have changed because of time lags. Stabilisation policy can therefore stimulate an already recovering economy or contract an already weakening one.
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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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