Consider policymakers who favour a passive approach to policy.In general, which of the following would these policymakers believe in?
A) slow self-correction rather than rapid self-correction
B) potentially incorrect price expectations rather than rational price expectations
C) a negatively sloped Phillips curve rather than a vertical Phillips curve
D) the natural rate hypothesis

Question

Consider policymakers who favour a passive approach to policy.In general, which of the following would these policymakers believe in?  
A) slow self-correction rather than rapid self-correction 
B) potentially incorrect price expectations rather than rational price expectations 
C) a negatively sloped Phillips curve rather than a vertical Phillips curve 
D) the natural rate hypothesis

Quizplus · Accepted Answer

Policymakers who favour a passive approach to policy believe in the natural rate hypothesis, which suggests that the economy will self-correct in the long run and that monetary policy should not try to manipulate the natural rate of unemployment. They are more likely to believe that government intervention in the form of fiscal or monetary policy can do more harm than good, and that slow self-correction is preferable to rapid self-correction or attempts to fine-tune the economy. They may also be more likely to believe in rational price expectations and a vertical Phillips curve, as these assumptions support a passive approach to policy.

Consider Policymakers Who Favour a Passive Approach to Policy