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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