The figure below shows the relationship between an economy's potential output, price level, and real GDP. According to those who favor a passive approach to policy, the economy will attain equilibrium at potential output when:

A) the short-run aggregate supply curve shifts to the left.
B) the short-run aggregate supply curve shifts to the right due to a fall in real wages.
C) either the money supply or government spending is increased.
D) either the money supply or government spending is decreased.
E) aggregate demand is decreased.

Question

The figure below shows the relationship between an economy's potential output, price level, and real GDP. According to those who favor a passive approach to policy, the economy will attain equilibrium at potential output when:

A) the short-run aggregate supply curve shifts to the left. 
B) the short-run aggregate supply curve shifts to the right due to a fall in real wages. 
C) either the money supply or government spending is increased. 
D) either the money supply or government spending is decreased. 
E) aggregate demand is decreased.

Quizplus · Accepted Answer

The Answer is B

The Figure Below Shows the Relationship Between an Economy's Potential