Exhibit 15-1

-Refer to the graph in the exhibit.According to policymakers who favour a passive approach to policy, how will the economy attain equilibrium at potential output?
A) The SRAS curve will shift to the left.
B) The SRAS curve will shift to the right.
C) Either the money supply or government spending will be increased.
D) Either the money supply or government spending will be decreased.

Question

Exhibit 15-1
 
-Refer to the graph in the exhibit.According to policymakers who favour a passive approach to policy, how will the economy attain equilibrium at potential output?  
A) The SRAS curve will shift to the left. 
B) The SRAS curve will shift to the right. 
C) Either the money supply or government spending will be increased. 
D) Either the money supply or government spending will be decreased.

Quizplus · Accepted Answer

Policymakers who favor a passive approach to policy believe that the economy will self-correct over time. In the context of the graph, if the economy is below its potential output, the Short-Run Aggregate Supply (SRAS) curve will naturally shift to the right as wages adjust downwards, making production more profitable and stimulating an increase in output back to the potential level. This process does not involve active interventions such as manipulating the money supply or government spending.

Exhibit 15-1 -Refer to the Graph in the Exhibit.According to Policymakers Who