Figure 17-3
-Refer to Figure 17-3. Suppose the economy is at point c. A classical economist would advocate
A) allowing the economy's self-correcting mechanism to move the economy to point a.
B) pursuing expansionary fiscal policies to move the economy to point a.
C) pursuing expansionary fiscal policies to move the economy to point b.
D) pursuing expansionary fiscal policies to move the economy to point d.

Question

Figure 17-3 
-Refer to Figure 17-3. Suppose the economy is at point c. A classical economist would advocate
A) allowing the economy's self-correcting mechanism to move the economy to point a. 
B) pursuing expansionary fiscal policies to move the economy to point a. 
C) pursuing expansionary fiscal policies to move the economy to point b. 
D) pursuing expansionary fiscal policies to move the economy to point d.

Quizplus · Accepted Answer

A classical economist would advocate for allowing the economy's self-correcting mechanism to move the economy to point a. This is because classical economists believe that the economy will naturally adjust and return to its long-run equilibrium without government intervention. In this case, the economy is experiencing a recessionary gap (output below potential output), so allowing wages and prices to adjust downwards would eventually lead to full employment at potential output (point a). Pursuing expansionary fiscal policies (choices B, C and D) would go against the principles of classical economics, which emphasize limited government intervention in the economy.

Figure 17-3 -Refer to Figure 17-3. Suppose the Economy Is at Point