Question

Which of the following policies would be advocated by proponents of stabilization policy when the economy is experiencing severe unemployment?

a. a decrease in the money supply

b. an increase in tax rates

c. an increase in government purchases

d. an increase in interest rates.

Answer 1

Stabilization policy is the policy which is enacted by the government or its central bank in which its aim is to maintain the economic growth and to prevent the economy from excessive over and slowing down.

Stabilization policy is used to prevent widespread unemployment.

So when the economy experiencing severe unemployment so there should be an increase in government purchase so that investment increases and money supply increases so that the demand is created.

So option C is the correct statement.