For Policymakers Who Favour an Active Approach, Why Are Public

question 9

Multiple Choice

For policymakers who favour an active approach, why are public policy changes considered necessary for curing a recessionary gap?  

• A) because the short-run aggregate supply curve will otherwise shift quickly to the right 
• B) because prices and wages are flexible downward but NOT upward 
• C) because the required decrease in output can be achieved only by shifting the AD curve 
• D) because real wages must fall during price increases rather than wait for money wages to fall

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Definitions:

Asymmetric Information

A scenario where one participant in a deal possesses greater or more advanced information than the other.

Adverse Selection

A situation where uneven information leads to transactions between parties where one party has more or better information than the other, often seen in insurance markets.

Occur

To happen or take place, referring to events or phenomena.

Adverse Selection

A situation in which one party in a transaction has more information than the other, often leading to an imbalance in which high-risk individuals are more likely to select and benefit from certain agreements, policies, or products.