Which of the following is a common argument made by opponents of active stabilization policy in macroeconomics?

• A. Opponents believe that government intervention is necessary to correct market failures.
• B. Economic policies often have long lags, making it difficult to time interventions effectively.
• C. Active stabilization policies always lead to lower unemployment rates.
• D. Active stabilization policies guarantee price stability in the short run.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of active stabilization policy, which involves government intervention through fiscal or monetary policy to smooth out economic fluctuations and stabilize output and employment.
2. Step 2: Recognize that opponents of active stabilization policy often argue about the practical challenges and potential downsides of such interventions.
3. Step 3: Identify that one common argument against active stabilization is related to the timing of policy effects, specifically that economic policies have long and variable lags before their effects are felt in the economy.
4. Step 4: Note that because of these long lags, it becomes difficult for policymakers to time interventions correctly, which can lead to policies that are either too late or too strong, potentially destabilizing the economy further.
5. Step 5: Conclude that this timing problem is a key reason opponents argue against active stabilization, rather than claims that government intervention is always necessary or that such policies guarantee specific outcomes like lower unemployment or price stability.