If the Advice of Those Who Favor a Passive Approach

question 122

Multiple Choice

If the advice of those who favor a passive approach to policy is correct, how would a contractionary gap eventually close?

• A)The aggregate demand curve would shift rightward.
• B)The aggregate demand curve would shift leftward.
• C)The short-run aggregate supply curve would shift rightward.
• D)The short-run aggregate supply curve would shift leftward.
• E)There would be a movement upward along the aggregate demand curve.

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Definitions:

Operating Capacity

The maximum output or production level a company can sustain with its current resources, such as machinery and labor, over a specific period.

Unused Capacity

Resources or production potential that remains unutilized or is not being used to its full extent.

Opportunity Cost

The cost of the next best alternative that is foregone when a decision is made to choose one option over others.

Cash Outlay

The actual amount of money spent by a company to purchase goods or services, as opposed to accounting estimates or accruals.