Suppose the time required for an economy to self-correct is shorter than the active policy lags.Which of the following best describes the results of implementing an active policy?
A) Active policy should be strengthened.
B) Active policy will likely be destabilizing.
C) The aggregate demand curve will shift more rapidly than the short-run aggregate supply curve.
D) Active policy will work better than passive policy.

Question

Suppose the time required for an economy to self-correct is shorter than the active policy lags.Which of the following best describes the results of implementing an active policy?  
A) Active policy should be strengthened. 
B) Active policy will likely be destabilizing. 
C) The aggregate demand curve will shift more rapidly than the short-run aggregate supply curve. 
D) Active policy will work better than passive policy.

Quizplus · Accepted Answer

If the time required for an economy to self-correct is shorter than the active policy lags, it means that by the time the active policy is fully implemented, the economy may have already corrected itself. Therefore, implementing an active policy may end up being destabilizing and may cause more harm than good.

Suppose the Time Required for an Economy to Self-Correct Is