If an economist who favors a passive approach observes a drop in real GDP caused by a decrease in aggregate demand,she is most likely to think that
A)the economy will recover by itself before discretionary policy can correct the situation
B)discretionary policy will correct the situation before the economy recovers by itself
C)the imposition of policy rules will correct the situation before the economy recovers by itself
D)aggregate supply will decrease to compensate for the decrease in aggregate demand
E)the economy will not recover by itself

Question

Quizplus · Accepted Answer

A passive economist believes that the economy will self-correct over time without government intervention. Therefore, if they observe a drop in real GDP caused by a decrease in aggregate demand, they are likely to think that the economy will recover by itself before any discretionary policy is needed.

If an Economist Who Favors a Passive Approach Observes a Drop