Figure 7-6 -Refer to Figure 7-6. Suppose the Economy Is Initially in Is

Multiple Choice

Figure 7-6
-Refer to Figure 7-6. Suppose the economy is initially in short-run equilibrium at B. Policy makers could either pursue a stabilization policy or allow the economy to adjust on its own. What is the difference between the two policy choices, if any?

A) A stabilization policy would return real GDP to its potential at a price level of P_a while a nonintervention policy would return real GDP to its potential at a price level of P_d.
B) A stabilization policy would return real GDP to its potential at a price level of P_d while a nonintervention policy would return real GDP to its potential at a price level of P_a.
C) Both policies would return real GDP to its potential at a price level of P_a.
D) Both policies would return real GDP to its potential at a price level of P_d.