If the price level in an economy rises and its output level decreases as it gravitates toward its potential GDP,then:
A)a policy to manipulate the aggregate supply is being used.
B)an active approach to correcting a recessionary gap is being used.
C)an active approach to correcting an expansionary gap is being used.
D)a passive approach to correcting a recessionary gap is being used.
E)a passive approach to correcting an expansionary gap is being used.

Question

Quizplus · Accepted Answer

A passive approach to correcting an expansionary gap involves allowing the economy to self-correct without intervention, which can lead to higher prices and reduced output as it moves toward potential GDP.

If the Price Level in an Economy Rises and Its