To support the argument for an active role for government in stabilizing the economy, it must be TRUE that
A)consumers are not rational and that not all wages and prices are flexible.
B)consumers are not rational and shocks to the economy are primarily due to aggregate demand.
C)government must be able to react quickly enough and that shocks to the economy be primarily due to aggregate supply shocks.
D)shocks to the economy be primarily due to aggregate supply shocks and that consumers are not rational.
E)not all wages and prices are flexible and that government must be able to react quickly enough.

Question

Quizplus · Accepted Answer

The argument for an active role for government in stabilizing the economy is that there are situations where not all wages and prices are flexible, and government must be able to react quickly enough to stabilize the economy. This supports choice E. Choice A and D mention consumers not being rational, which is not necessarily a requirement to support the argument for government intervention. Choice B suggests that shocks to the economy are primarily due to aggregate demand, which is not always the case. Choice C suggests that government must be able to react quickly enough, which is in line with the argument, but the requirement for shocks to be primarily due to aggregate supply shocks does not necessarily have to be true to support the argument.

To Support the Argument for an Active Role for Government