Use the Following to Answer Questions

question 75

Multiple Choice

Use the following to answer questions .
Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2
-(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2) 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.

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