Exhibit 16-1
-According to those who favor an active approach to policy,how can the economy shown in Exhibit 16-1 attain equilibrium at potential output?
A)The SRAS curve will shift to the left.
B)The SRAS curve will shift to the right.
C)The Fed or the government should act to shift the aggregate demand curve to the right.
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 an active approach to policy,how can the economy shown in Exhibit 16-1 attain equilibrium at potential output?
A)The SRAS curve will shift to the left. 
B)The SRAS curve will shift to the right. 
C)The Fed or the government should act to shift the aggregate demand curve to the right. 
D)Either the money supply or government spending should be decreased. 
E)Aggregate demand should be decreased.

Quizplus · Accepted Answer

According to those who favor an active approach to policy, the economy shown in Exhibit 16-1 can attain equilibrium at potential output by shifting the aggregate demand curve to the right. This can be achieved through fiscal or monetary policy measures taken by the government or the Fed. By increasing government spending or decreasing taxes, the government can boost consumer and business spending, leading to an increase in aggregate demand. Similarly, the Fed can stimulate the economy by decreasing interest rates and increasing the money supply, leading to an increase in investment and spending. As a result, the aggregate demand curve shifts to the right, and the economy can attain equilibrium at potential output.

Exhibit 16-1 -According to Those Who Favor an Active Approach to Policy,how