Stabilization policy refers to the use of:
A)Only fiscal policy
B)Only monetary policy
C)Either fiscal or monetary policy
D)Policy to shift the long-run aggregate supply curve

Question

Quizplus · Accepted Answer

The term "stabilization policy" refers to the actions taken by the government to stabilize the economy during periods of macroeconomic instability such as recessions, inflation, or high unemployment. This can be achieved through the use of fiscal policy (changes in government spending or taxation) or monetary policy (changes in interest rates or the money supply). Therefore, both fiscal and monetary policy can be used to implement stabilization policy. Option A and B are incorrect because stabilization policy is not limited to only one type of policy. Option D is incorrect because shifting the long-run aggregate supply curve is not a stabilization policy; it is a structural policy.

Stabilization Policy Refers to the Use Of