Figure 7-6 -Refer to Figure 7-6. Suppose the economy is initially in short-run equilibrium at B. Policy makers could either pursue a stabilization policy or allow the economy to adjust on its own. What is the difference between the two policy choices, if any? A) A stabilization policy would return real GDP to its potential at a price level of P_a while a nonintervention policy would return real GDP to its potential at a price level of P_d. B) A stabilization policy would return real GDP to its potential at a price level of P_d while a nonintervention policy would return real GDP to its potential at a price level of P_a. C) Both policies would return real GDP to its potential at a price level of P_a_. D) Both policies would return real GDP to its potential at a price level of P_d_.

Question

Quizplus · Accepted Answer

A stabilization policy would quickly adjust the economy to its potential GDP at a lower price level (P_a), while a nonintervention policy would allow the economy to adjust naturally, potentially resulting in a higher price level (P_d).

Figure 7-6 -Refer to Figure 7-6. Suppose the Economy Is Initially in Is