The government possesses the tools necessary to influence the output level in the short run through use of monetary and fiscal policy. However, there is some debate regarding whether the government should attempt to stabilize the economy.

Which of the following are arguments in favor of active stabilization policy by the government? Check all that apply.

Changes in government purchases and taxation must be passed by both houses of Congress and signed by the president.

Shifts in aggregate demand are often the result of waves of pessimism or optimism among consumers and businesses.

Businesses make investment plans many months in advance.

The Fed can effectively respond to excessive pessimism by expanding the money supply and lowering interest rates.

Which of the following policies are examples of automatic stabilizers? Check all that apply.

The federal funds rate

The discount rate

Corporate income taxes