Suppose actual GDP is $10 billion below potential GDP.How can the economy achieve long-run equilibrium using a passive approach?
A) Policymakers can stimulate aggregate demand.
B) The short-run aggregate supply could shift outward.
C) The short-run aggregate supply curve could shift to the left.
D) Policymakers can reduce aggregate demand.

Question

Suppose actual GDP is $10 billion below potential GDP.How can the economy achieve long-run equilibrium using a passive approach?  
A) Policymakers can stimulate aggregate demand. 
B) The short-run aggregate supply could shift outward. 
C) The short-run aggregate supply curve could shift to the left. 
D) Policymakers can reduce aggregate demand.

Quizplus · Accepted Answer

If the short-run aggregate supply curve shifts outward, it would lead to an increase in real output and decrease in price level, which would help the economy move towards long-run equilibrium. This shift in short-run aggregate supply could be caused by technological advancements, improvements in infrastructure, or an increase in the availability of resources. A passive approach refers to a minimal intervention by policymakers, and in this case, the economy can achieve long-run equilibrium without any active policy intervention.

Suppose Actual GDP Is $10 Billion Below Potential GDP