Active ﬁscal and monetary policy is required to move an economy back to equilibrium when:
A) the pace of adjustment of prices and wages is sluggish.
B) wages and prices are highly ﬂexible.
C) the long-run aggregate supply curve is upward sloping.
D) the aggregate demand curve is vertical.

Question

Quizplus · Accepted Answer

Active fiscal and monetary policy is most effective in situations where prices and wages are slow to adjust. This sluggishness can prevent the economy from naturally returning to equilibrium, necessitating government intervention to stimulate or cool down the economy.

Active ﬁScal and Monetary Policy Is Required to Move an Economy