Refers to Exhibit 4. Suppose the economy is operating in a recession such as point B in Exhibit 4. If policy makers wished to move output to its long run natural rate they should attempt to ?
Correct answer: C. shift aggregate demand to the right
- A. Shift aggregate demand to the left
- B. Shift short run aggregate supply to the left
- C. shift aggregate demand to the right
- D. shift short-run aggregate supply to the right
Explanation
A recession means output is below its natural rate, so policymakers can increase output by shifting aggregate demand to the right through expansionary fiscal or monetary policy. A leftward shift would deepen the recession.
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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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