Compare and contrast the arguments favoring active versus passive policymaking.
What will be an ideal response?
The models that stress wage and price flexibility and rationality on the part of economic agents tend to favor passive policymaking. If people can anticipate policy actions and if wages and prices are flexible, the economy will tend toward long-run equilibrium. Discretionary policies conducted by governmental policymakers will not be effective means of influencing real Gross Domestic Product (GDP). In contrast, economists who conclude that small menu costs are important elements of real-world economies conclude that active policy making can influence real GDP and move the economy toward full employment.
You might also like to view...
Figure 4.3 illustrates the demand for tacos. A decrease in price of tacos would bring about a movement from
A) point a to point c. B) point c to point a. C) D2 to D0. D) D0 to D2.
Which of these is not among the principal determinants of economic growth?
A) institutions B) education C) research and development D) balanced trade E) saving and investment
If bargaining is costless, the assignment of property rights for an externality
a. has no impact on the possibility of an efficient outcome and no distributional impact. b. has no impact on the possibility of an efficient outcome but does have a distributional impact. c. does have an impact on the possibility of an efficient outcome but has no distributional impact. d. does have an impact on the possibility of an efficient outcome and does have a distributional impact.
When outcomes are uncertain
A) people always look for the sure thing. B) people are willing to pay risk premiums. C) people often need to be paid a risk premium before they take a certain course. D) none of these choices.