The Figure Below Shows the Relationship Between an Economy's Potential

question 76

Multiple Choice

The figure below shows the relationship between an economy's potential output, price level, and real GDP. According to those who favor a passive approach to policy, the economy will attain equilibrium at potential output when:

• A) the short-run aggregate supply curve shifts to the left.
• B) the short-run aggregate supply curve shifts to the right due to a fall in real wages.
• C) either the money supply or government spending is increased.
• D) either the money supply or government spending is decreased.
• E) aggregate demand is decreased.

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Definitions:

Acquire Funds

The process of obtaining capital or money to finance operations, investments, or other business activities.

Foreign Exchange Markets

Markets involving the trading of currencies worldwide which facilitate currency conversion for international transactions and investments.

Stability

The condition where an economy or a financial system operates without excessive fluctuations or crises.

High Prices

Situations where the cost of goods and services are above average or expected levels.