Figure 7-7 -Refer to Figure 7-7. Suppose the Economy Is Initially in Is

question 31

Multiple Choice

Figure 7-7
-Refer to Figure 7-7. Suppose the economy is initially in short-run equilibrium at K. Policy makers could either pursue a stabilization policy or allow the economy to adjust on its own. What is the difference between the two policy choices, if any?

• A) Both policies would return real GDP to its potential at a price level of P_j.
• B) Both policies would return real GDP to its potential at a price level of P_h.
• C) A stabilization policy would return real GDP to its potential at a price level of P_j while a nonintervention policy would return real GDP to its potential at a price level of P_h.
• D) A stabilization policy would return real GDP to its potential at a price level of P_h while a nonintervention policy would return real GDP to its potential at a price level of P_j.