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9.20 Identify the two main types of policies used by the government to conduct macroeconomic stabilization....


9.20 Identify the two main types of policies used by the government to conduct macroeconomic stabilization. For each, state whether its DESIRED effect is on the AD curve, the LRAS curve, or both.

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Answer #1

Two main stabilization policy used by the government to manage the economy are taxes and unemployment benefits or transfer payments.

Taxes: as the income increase the taxes will increase and decrease with a decrease in the income, it will lead to a moderate increase or decrease in the output and keep the AD curve stable, it will not affect the LRAS curve.

Unemployment benefit will increase as the income falls and decrease as the income rises, it will also keep the Ad curve stable and not affect the LRAS. but it will affect the SRAS.

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