What is the main goal of macroeconomic policy activism?
to ensure that only politicians that believe in Keynesian economics get elected
to increase government debt
to reduce the severity of business cycles
to increase aggregate demand through tax cuts
to increase aggregate demand by expanding the size of the federal government
The Correct Answer and Explanation is :
The correct answer is “to reduce the severity of business cycles.”
Macroeconomic policy activism refers to the use of government policies, particularly fiscal and monetary policies, to manage the economy’s overall performance. The goal is to stabilize the economy by mitigating the effects of economic fluctuations such as recessions and booms, also known as business cycles. These cycles can lead to unemployment, inflation, or deflation, all of which can have negative effects on people’s livelihoods and the economy as a whole. The main aim of macroeconomic activism is to reduce the severity of these fluctuations, making the economy more predictable and less prone to extreme variations.
There are two primary types of macroeconomic policies: fiscal and monetary. Fiscal policy involves government spending and taxation decisions, while monetary policy involves controlling the money supply and interest rates, typically through a central bank like the Federal Reserve in the U.S. Both types of policies can be used in tandem to address economic downturns or inflationary periods.
When the economy enters a recession, the government may use fiscal policy, such as increasing public spending or cutting taxes, to stimulate demand and increase economic activity. Monetary policy could also be used to lower interest rates, making borrowing cheaper for consumers and businesses. During periods of inflation, the government may reverse these policies to cool down the economy by reducing spending, raising taxes, or increasing interest rates.
The primary goal of these policies is to reduce the severity of business cycles and smooth out economic fluctuations, fostering stable growth. While increasing aggregate demand can be part of the strategy, the broader aim is to balance the economy and ensure long-term stability, rather than simply increasing government debt or expanding the size of government.