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Suppose that changes in aggregate demand tended to be infrequent and that it takes a long time for the economy to return to long-run output

Economics Dec 16, 2020

Suppose that changes in aggregate demand tended to be infrequent and that it takes a long time for the economy to return to long-run output. How would this affect the arguments of those who oppose using policy to stabilize output?

Expert Solution

A change in aggregate demand to be infrequent and it takes long run for the economy to long –run output. Because aggregate demand has direct effect on government expenditure and revenue budget, employment rate.
Many argued that policy has no effect on stabilizing economic growth because it will be affected only when there is proportionate increase in output and employment.
Policy has positive affect only on modern growth economies because there investment is higher comparatively other economy.
Policy has no affect because company makes plans in advance but it takes more than half year to implement and to get response when there is change in economy it shows inflation and low GDP which delay in plan execution.
If policy used during change in aggregate demand it makes destabilize rather than stabilize.

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