Which of the following statements about stabilization policy is not true ?
Correct answer: C. Long lags enhance the ability of policy makers to fine tune the economy
- A. Many economists prefer automatic stabilizers because they affect the economy with a shorter lag than activist stabilization policy
- B. None of these answers are true
- C. Long lags enhance the ability of policy makers to fine tune the economy
- D. When policy makers implement activist stabilization policies there is a significant risk that their policies may actually have a destabilizing effect
Explanation
Long policy lags make fine-tuning harder because the economy may change before the policy takes effect, potentially causing destabilization. Automatic stabilizers are often preferred because they operate with less delay.
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