The figure below shows the price level,real GDP,and the potential output for an economy.According to those who favor an active approach to policy,once the expansionary gap is eliminated,the economy can attain equilibrium at:
Figure 16.2

A)point A.
B)point B.
C)point C.
D)a point above point A on the SRAS curve.
E)at a point below point C on the SRAS curve.

Question

The figure below shows the price level,real GDP,and the potential output for an economy.According to those who favor an active approach to policy,once the expansionary gap is eliminated,the economy can attain equilibrium at:​ ​
Figure 16.2
​

A)point A. 
B)point B. 
C)point C. 
D)a point above point A on the SRAS curve. 
E)at a point below point C on the SRAS curve.

Quizplus · Accepted Answer

Those who favor an active approach to policy believe in using government intervention to close the expansionary gap and bring the economy back to its potential output level. Point C represents the potential output level where the economy is in equilibrium, meaning that there is no inflationary or recessionary pressure. Therefore, the economy can attain equilibrium at point C once the expansionary gap is eliminated, as favored by those who support active policy.

The Figure Below Shows the Price Level,real GDP,and the Potential