Those who favor a passive approach to policy think that all of the following conditions will allow the economy to bring itself out of a recessionary gap except one.Which is the exception?
A)lower real wages
B)a shortage of labor
C)lower production costs
D)a lower expected price level
E)a rightward shift in the short-run aggregate supply curve

Question

Quizplus · Accepted Answer

A shortage of labor would not allow the economy to bring itself out of a recessionary gap as firms would be unable to produce the desired level of output, which would only worsen the gap. On the other hand, lower real wages, lower production costs, a lower expected price level, and a rightward shift in the short-run aggregate supply curve would all help to increase the level of output and move the economy towards potential GDP.

Those Who Favor a Passive Approach to Policy Think That