Answer to Question #327716 in Macroeconomics for Neel

Question

Since the effects of policy are uncertain, more active policies lead to more uncertainty. 

Explain this statement in the context of using monetary policy as a tool to expand output 

during recession.

Answer 1

Increases in both political uncertainty and economic policy uncertainty reduce business confidence. Business confidence acts as a transmission mechanism, i.e. uncertainties affect investments through business confidence.