Which of the following statements supports the passive approach to close a recessionary gap?
A) It is likely that policies will be subject to time lags.
B) Prolonged unemployment may cause an economy's potential real GDP to fall.
C) Workers' skills may grow rusty during a prolonged recession.
D) It is likely that unemployed workers will drop out of the labor force.
E) Firms may neglect their capital stock during a prolonged recession.

Question

Quizplus · Accepted Answer

Policies aimed at closing a recessionary gap can be subject to time lags, which supports the passive approach by suggesting that interventionist policies may not take effect in a timely manner, thereby allowing the economy to adjust on its own.

Which of the Following Statements Supports the Passive Approach to Close