Exhibit 16-1
-According to those who favor a passive approach to policy,how will the economy shown in Exhibit 16-1 attain equilibrium at potential output?
A)The SRAS curve will shift to the left.
B)Real wages will fall shifting the SRAS curve 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 16-1 
-According to those who favor a passive approach to policy,how will the economy shown in Exhibit 16-1 attain equilibrium at potential output?
A)The SRAS curve will shift to the left. 
B)Real wages will fall shifting the SRAS curve 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 through market mechanisms, such as falling real wages, which would shift the SRAS curve to the right, moving the economy towards equilibrium at potential output.

Exhibit 16-1 -According to Those Who Favor a Passive Approach to Policy,how