If an Economist Who Favors a Passive Approach Observes a Drop

question 103

Multiple Choice

If an economist who favors a passive approach observes a drop in real GDP caused by a decrease in aggregate demand,she is most likely to think that

• A)the economy will recover by itself before discretionary policy can correct the situation
• B)discretionary policy will correct the situation before the economy recovers by itself
• C)the imposition of policy rules will correct the situation before the economy recovers by itself
• D)aggregate supply will decrease to compensate for the decrease in aggregate demand
• E)the economy will not recover by itself

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Definitions:

Retained Earnings

Profit that remains after dividends are paid, which is reinvested in the company or used to pay off debt.

Treasury Stock

Shares of a company's own stock that it has reacquired but not retired, which do not pay dividends and have no voting rights.

Cash Dividend

A payment made by a company out of its profits to its shareholders in the form of cash.

Stockholders' Equity

The ownership interest of shareholders in the net assets of a corporation, represented by the difference between total assets and total liabilities.