Exhibit 16-1
-According to those who favor a passive approach to policy,how will the economy shown in Exhibit 16-1 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 money supply or government spending should be decreased.
E)Aggregate demand should be decreased.

Question

Exhibit 16-1 
-According to those who favor a passive approach to policy,how will the economy shown in Exhibit 16-1 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 money supply or government spending should be decreased. 
E)Aggregate demand should be decreased.

Quizplus · Accepted Answer

A passive approach suggests that the economy will self-correct without intervention, typically through shifts in the short-run aggregate supply (SRAS) curve. If the economy is below potential output, the SRAS curve will shift to the right as resource prices adjust, moving the economy back to equilibrium at potential output.

Exhibit 16-1 -According to Those Who Favor a Passive Approach to Policy,how