In the Long Run, How Would an Active Approach to a Contractionary

question 18

Multiple Choice

In the long run, how would an active approach to a contractionary gap differ from a passive approach to policy?

• A)Both the price level and the level of real GDP would be higher in the long run with the activist solution.
• B)Both the price level and the level of real GDP would be lower in the long run with the activist solution.
• C)The price level would be higher and the level of real GDP would be lower in the long run with the activist solution.
• D)Only the price level would be lower in the long run with the activist solution.
• E)Only the price level would be higher in the long run with the activist solution.

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Definitions:

Net Present Value

The calculation of the present value of an investment's expected earnings, minus the initial capital outlay.

Net 30 Credit Policy

A payment term that allows a buyer 30 days to pay the invoice in full from the invoice date.

Monthly Interest Rate

The interest rate charged on a loan or realized on an investment over a one-month period.

Discounted Price

A reduced price from the original price, often applied during sales or due to promotions.