Which of the following statements supports the passive approach to close a recessionary gap?
A)It is likely that policies will be subject to time lags.
B)Prolonged unemployment may cause the economy's potential real GDP to fall.
C)Workers' skills may grow rusty during a prolonged recession.
D)It is likely that unemployed workers will drop out of the labor force.
E)Firms may neglect their capital stock during a prolonged recession.

Question

Quizplus · Accepted Answer

The statement "It is likely that policies will be subject to time lags" supports the passive approach to close a recessionary gap because it suggests that policies aimed at stimulating the economy may take time to have an effect and therefore it is better to take a wait-and-see approach rather than more active policy measures, such as fiscal or monetary policy. The passive approach involves allowing the economy to naturally recover on its own without intervention.

Which of the Following Statements Supports the Passive Approach to Close