Exhibit 15-1

-Refer to the graph in the exhibit.According to policymakers who favour an active approach to policy, how can the economy attain equilibrium at potential output?
A) by shifting the SRAS curve to the left
B) by shifting the SRAS curve to the right
C) by increasing the money supply or by increasing government spending
D) by decreasing the money supply or by decreasing government spending

Question

Exhibit 15-1
 
-Refer to the graph in the exhibit.According to policymakers who favour an active approach to policy, how can the economy attain equilibrium at potential output?  
A) by shifting the SRAS curve to the left 
B) by shifting the SRAS curve to the right 
C) by increasing the money supply or by increasing government spending 
D) by decreasing the money supply or by decreasing government spending

Quizplus · Accepted Answer

Policymakers who favour an active approach to policy believe that the economy can attain equilibrium at potential output by increasing the money supply or by increasing government spending. This is because these policies are intended to shift the AD curve to the right, which will increase both output and prices in the short run, and encourage firms to increase production and investment in the long run, leading to potential output. Shifting the SRAS curve to the left (option A) would lead to a reduction in both output and prices, while decreasing the money supply or government spending (option D) would reduce AD, leading to a lower equilibrium level of output and prices. Shifting the SRAS curve to the right (option B) might also be attractive to policymakers who favour a passive approach to policy, but it is not the best choice for policymakers who favour an active approach.

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