Exhibit 17-1
-According to those who favor a passive approach to policy, how will the economy shown in Exhibit 17-1 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 17-1 
-According to those who favor a passive approach to policy, how will the economy shown in Exhibit 17-1 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. In this case, the SRAS curve shifting to the right would indicate an increase in production capacity, leading the economy back to potential output.

Exhibit 17-1 -According to Those Who Favor a Passive Approach to Policy