How does consumer confidence interact with public policies when in a recession? How about in a boom? Does it make policies more effective or less effective in achieving economic stability? Why?
Consumer confidence is highly intertwined with public policies when in a recession or a boom. Desired spending by households and firms determines the overall demand for goods and services, which effects the aggregate demand. In a recession, consumers do not have high levels of confidence which effects the willingness to spend. In a boom, consumers have high levels of confidence which aides in spending. Public policies need to be implemented to create consumer confidence. The use of policy instruments to stabilize aggregate demand and, as a result, production and employment. The argument about the government becoming more involved with using policy to stabilize the government is there is too much of a lag. The lags in implementation reduce the efficiency of policy as a tool for short-run stabilization. Utilizing automatic stabilizers are changes that avoid the lag.
Principles of Macroeconomics Spring 2020 