Exhibit 17-2
-According to those who favor an active approach to policy, where will the economy in Exhibit 17-2 end up once the expansionary gap is eliminated?
A)point A
B)point B
C)point C
D)either point B or C
E)cannot tell from the information given

Question

Exhibit 17-2 
-According to those who favor an active approach to policy, where will the economy in Exhibit 17-2 end up once the expansionary gap is eliminated?
A)point A 
B)point B 
C)point C 
D)either point B or C 
E)cannot tell from the information given

Quizplus · Accepted Answer

An active approach to policy suggests that the economy will adjust to eliminate the expansionary gap, moving towards long-term equilibrium at point C, where aggregate demand equals long-run aggregate supply.

Exhibit 17-2 -According to Those Who Favor an Active Approach to Policy