According to the passive policymaker's position, why would an expansionary gap be eliminated?
A) because the short-run aggregate supply shifts to the left
B) because the short-run aggregate supply shifts to the right
C) because rising prices shift the aggregate demand to the left
D) because wages fall relatively quickly

Question

According to the passive policymaker's position, why would an expansionary gap be eliminated?  
A) because the short-run aggregate supply shifts to the left 
B) because the short-run aggregate supply shifts to the right 
C) because rising prices shift the aggregate demand to the left 
D) because wages fall relatively quickly

Quizplus · Accepted Answer

A passive policymaker believes that an expansionary gap will be eliminated as the short-run aggregate supply shifts to the left due to rising costs and prices, which reduce output back to potential GDP.

According to the Passive Policymaker's Position, Why Would an Expansionary