Exhibit 16-2

-Refer to Exhibit 16.2, which shows the price level, real GDP, and potential output for an economy. According to those who favor a passive approach to policy, once the expansionary gap is eliminated, the economy will end up at _____
A) point A.
B) point B.
C) point C.
D) a point to the right of point A.
E) a point below point C.

Question

Exhibit 16-2
 
-Refer to Exhibit 16.2, which shows the price level, real GDP, and potential output for an economy. According to those who favor a passive approach to policy, once the expansionary gap is eliminated, the economy will end up at _____
A) point A. 
B) point B. 
C) point C. 
D) a point to the right of point A. 
E) a point below point C.

Quizplus · Accepted Answer

Those who favor a passive approach to policy believe that the economy will self-correct over time. Point B represents the equilibrium where real GDP equals potential output, indicating the elimination of the expansionary gap without active intervention.

Exhibit 16-2 -Refer to Exhibit 16.2, Which Shows the Price Level, Real