The activists believe that
A)the time required for flexible prices to bring the economy back to the natural rate of unemployment is relatively short.
B)the IS curve is relatively flat because of the broad range of assets whose demand is very sensitive to changes in the interest rate.
C)the time required for flexible prices to return the economy to the natural level of real GDP is intolerably long.
D)the severity of the Great Depression was primarily related to the large decline in the supply of money.

Question

Quizplus · Accepted Answer

The activists believe that the time required for flexible prices to return the economy to the natural level of real GDP is intolerably long. Therefore, they argue that active government intervention is necessary to shorten the adjustment time and reduce the costs of economic downturns. Option A is incorrect because the activists do not believe that the adjustment time is relatively short. Option B is incorrect because the activists' argument does not rely on the slope of the IS curve or the sensitivity of asset demand to changes in interest rates. Option D is also incorrect because the activists' view is not primarily related to the money supply but rather to the need for active government intervention to stabilize the economy.

The Activists Believe That