In the long run, how would an active approach to a recessionary gap differ from a passive approach to policy?
A) In an activist approach, both the price level and the level of real GDP would be higher in the long run.
B) In an activist approach, both the price level and the level of real GDP would be lower in the long run.
C) In an activist approach, only the price level would be lower in the long run.
D) In an activist approach, only the price level would be higher in the long run.

Question

In the long run, how would an active approach to a recessionary gap differ from a passive approach to policy?  
A) In an activist approach, both the price level and the level of real GDP would be higher in the long run. 
B) In an activist approach, both the price level and the level of real GDP would be lower in the long run. 
C) In an activist approach, only the price level would be lower in the long run. 
D) In an activist approach, only the price level would be higher in the long run.

Quizplus · Accepted Answer

An activist approach to a recessionary gap typically involves stimulating the economy through fiscal or monetary policy, which can lead to higher price levels in the long run due to increased demand, without necessarily changing the long-run level of real GDP, which is determined by supply-side factors.

In the Long Run, How Would an Active Approach to a Recessionary