Which of the following statements supports the passive approach to a recessionary gap?
A) It is likely that policies will be subject to time lags.
B) Prolonged unemployment may cause the economy's potential real GDP to fall.
C) Workers' skills may grow rusty during a prolonged recession.
D) Unemployed workers may drop out of the labour force during a prolonged recession.

Question

Which of the following statements supports the passive approach to a recessionary gap?  
A) It is likely that policies will be subject to time lags. 
B) Prolonged unemployment may cause the economy's potential real GDP to fall. 
C) Workers' skills may grow rusty during a prolonged recession. 
D) Unemployed workers may drop out of the labour force during a prolonged recession.

Quizplus · Accepted Answer

Policies aimed at addressing a recessionary gap can indeed be subject to time lags, which is a concern that supports a passive approach. This is because by the time the policies are implemented, the economy might have already begun to recover on its own, making active interventions potentially unnecessary or even destabilizing.

Which of the Following Statements Supports the Passive Approach to a Recessionary