Why doesn't stabilization policy work, according to economists using the misperceptions theory?
What will be an ideal response?
Stabilization policy requires taking systematic action to combat recessions (using stimulative policy) or to fight inflation (using restrictive policy). But policy works only if it is unanticipated, according to the misperceptions theory. So the use of stimulative policy in a recession would be anticipated and have no effect. Only unanticipated policy would work, but such a policy would have to be random, and could not be used to smooth the business cycle.
You might also like to view...
Basis
A. will be weak (negative) if local supply today is abundant relative to the supply the market expects at maturation of the futures contract. B. will be weak if local supply today is tight relative to the supply the market expects at maturation of the futures contract. C. will be weak (negative) if current supply is tight relative to the supply the market expects at maturation of the futures contract. D. will be stronger if the local market is further distant from the delivery location stipulated in the futures contract, other things being equal, and if the local market has excess supplies.
A macroeconomist would study
A) the price changes at K-Mart. B) the cost problems at several airlines. C) the economy's unemployment level. D) none of the above.