Asked by Adrian Rogalski on Apr 28, 2024
Verified
The figure below shows the price level,real GDP,and the potential output for an economy.According to those who favor a passive approach to policy,once the expansionary gap is eliminated,the economy will end up at:
A) point A.
B) point B.
C) point C.
D) a point to the right of point A.
E) a point below C.
Passive Approach
A Passive Approach refers to a strategy where minimal intervention or action is taken, often relating to investment or policy decisions.
Expansionary Gap
A situation in which the actual output in an economy exceeds the output it would produce at full employment, leading to inflationary pressures.
Potential Output
The maximum level of output an economy can achieve when utilizing its resources fully without causing inflation.
- Highlight the disparities between active and passive approaches in economic policy.
- Gain insight into the influence of aggregate demand and supply shifts on economic equilibrium.
Verified Answer
ZK
Zybrea KnightMay 04, 2024
Final Answer :
B
Explanation :
Those who favor a passive approach to policy believe that the economy will naturally return to its potential output level without intervention. In this figure, the expansionary gap is eliminated when the economy reaches point B, which is at the potential output level. Therefore, according to the passive approach, the economy will end up at point B.
Learning Objectives
- Highlight the disparities between active and passive approaches in economic policy.
- Gain insight into the influence of aggregate demand and supply shifts on economic equilibrium.