Exhibit 17-2
-According to those who favor an active approach to policy, how can the economy shown in Exhibit 17-2 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 should be increased.
D)Either the Fed or the government will act to decrease aggregate demand.
E)Aggregate demand should be increased.

Question

Exhibit 17-2 
-According to those who favor an active approach to policy, how can the economy shown in Exhibit 17-2 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 should be increased. 
D)Either the Fed or the government will act to decrease aggregate demand. 
E)Aggregate demand should be increased.

Quizplus · Accepted Answer

According to those who favor an active approach to policy, the economy can attain equilibrium at potential output through decreasing aggregate demand. This can be achieved by either the Fed or the government taking action to decrease aggregate demand. Therefore, the correct choice is D.

Exhibit 17-2 -According to Those Who Favor an Active Approach to Policy