Question

The existence of lags prevents the instantaneous adjustment of the economy to policies changing aggregate demand, thereby strengthening the case for

A) supply-side policy.

B) nonactivists.

C) activists.

D) demand-management policy.

Answer 1

Answer

B) nonactivists.

The nonactivists believe basically in the policy of laissez faire , i.e. no or minimal government intervention.They believe in self corrected  economic adjustments. The nonactivists economists are the classical economists. On the other hand, the activists are the strong believer of government intervention in economic adjustments.The activists are the Keneysian economists.

In this case the activists would favor the government intervention to boost the aggregate demand through change in fiscal and/or monetary policy.It would be demand side adjustment.

The nonactivists believe that the government intervention is not necessary here.The economy would be self corrected in liberal ways and through the adjustment of the economic variables, like wage, and price , which are flexible.  So, when the existence of lags in the economy prevents the instantaneous adjustment of the economic policies to change the aggregate demand,it advocates the policies that the nonactivists believe in.

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