If the advice of those who favor a passive approach to policy is correct,how would a recessionary gap eventually close?
A)The aggregate demand curve would shift rightward.
B)The aggregate demand curve would shift leftward.
C)The short-run aggregate supply curve would shift rightward.
D)The short-run aggregate supply curve would shift leftward.
E)There would be a movement upward along the aggregate demand curve.

Question

Quizplus · Accepted Answer

A passive approach suggests that the economy will self-correct over time. In a recessionary gap, high unemployment leads to lower wages, reducing production costs and shifting the short-run aggregate supply curve rightward, closing the gap.

If the Advice of Those Who Favor a Passive Approach