According to the passive policy maker's position,an expansionary gap will be eliminated because
A)the short-run aggregate supply will shift to the left
B)the short-run aggregate supply will shift to the right
C)rising prices will shift the aggregate demand to the left
D)wages will fall relatively quickly
E)aggregate demand will shift to the right as wages increase

Question

Quizplus · Accepted Answer

In the passive policy maker's view, an expansionary gap is self-correcting as the economy adjusts. Rising prices lead to higher production costs, causing the short-run aggregate supply to shift to the left, reducing output back to potential GDP.

According to the Passive Policy Maker's Position,an Expansionary Gap Will