Policies to reduce the likelihood of financial crises might include ________.
A)enlarging government budget deficits
B)reducing imbalances in global trade and capital flows
C)keeping the inflation rate near or below zero
D)more aggressive use of stabilization policy
E)all of the above

Question

Quizplus · Accepted Answer

Reducing imbalances in global trade and capital flows can help minimize the risk of financial crises, as large imbalances can create vulnerabilities in the financial system. The other options listed are not effective policies for reducing the likelihood of financial crises -- enlarging government budget deficits, keeping inflation near or below zero, and using stabilization policy aggressively can actually increase the risk of financial instability.

Policies to Reduce the Likelihood of Financial Crises Might Include