If the time for an economy to self-correct is shorter than the active policy lags,
A)active policy should be strengthened
B)active policy will likely be destabilizing
C)the passive policy case is weakened
D)the aggregate demand curve shifts more rapidly than the short-run aggregate supply curve
E)active policy will work better than passive policy

Question

Quizplus · Accepted Answer

If the time for an economy to self-correct is shorter than the active policy lags, it means that the economy is able to correct itself faster than the time it takes for active policies to take effect. In such a scenario, active policy interventions may be destabilizing and may not have the desired effect on the economy. Therefore, it is best to let the economy self-correct, rather than implementing active policies which may cause more harm than good. Thus, option B is correct.

If the Time for an Economy to Self-Correct Is Shorter