According to policymakers who favour a passive approach to policy, which of the following conditions will NOT allow the economy to bring itself out of a recessionary gap?
A) lower real wages
B) a shortage of labour
C) lower production costs
D) a lower expected price level

Question

According to policymakers who favour a passive approach to policy, which of the following conditions will NOT allow the economy to bring itself out of a recessionary gap?  
A) lower real wages 
B) a shortage of labour 
C) lower production costs 
D) a lower expected price level

Quizplus · Accepted Answer

Policymakers who favour a passive approach believe that the economy will naturally adjust and bring itself out of a recessionary gap without the need for intervention. One of the conditions that they believe will help this process is a shortage of labour, as it should lead to an increase in wages and therefore higher levels of consumer spending. Therefore, B would not be a condition that they believe would prevent the economy from recovering on its own.

According to Policymakers Who Favour a Passive Approach to Policy