A goal of monetary policy and fiscal policy is to[Fill in the blank]

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BlackTom AI · Accepted Answer

The question asks about the goal of monetary policy and fiscal policy in macroeconomics. 
Option a: 'enhance the shifts in aggregate demand and thereby increase economic growth.' While policy can aim to promote growth, the wording here suggests deliberately amplifying demand swings, which is not the typical objective of stabilizing policy—monetary and fiscal tools are usually used to smooth fluctuations rather than broaden them. So this option overstates the intent and misframes stabilization as growth acceleration via bigger demand shifts.
Option b: 'enhance the shifts in aggregate demand and thereby create fluctuations in output and employment.' This reverses the purpose of policy in stabilization policy: the aim is to reduce, not create, fluctuations. Encouraging swings in output and employment would undermine stability, making this choice incorrect.
Option c: 'offset the shifts in aggregate demand and thereby eliminate unemployment.' Although offsetting demand shifts is correct, the assertion that policy can eliminate unemployment entirely is too strong. In the real world, frictional and structural unemployment persist, and policy aims to stabilize and reduce fluctuations rather than guarantee zero unemployment. This makes the statement partially correct but overly absolute.
Option d: 'offset the shifts in aggregate demand and thereby stabilize the economy.' This option captures the core objective of both monetary and fiscal policy in stabilization policy: counteracting demand shocks to reduce the amplitude of business cycle fluctuations and promote overall economic stability. It correctly emphasizes both offsetting demand changes and achieving stabilization, aligning with standard macroeconomic theory.

A goal of monetary policy and fiscal policy is to[Fill in the blank]

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A goal of monetary policy and fiscal policy is to[Fill in the blank]

View Explanation

Log in for full answers

Similar Questions

If the economy is in a recession, an appropriate combination of monetary and fiscal policies might be to:

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An increase in tax rates is an example of policy, while the government influencing banks to lend more to consumers is an example of policy.