Which of the following statements supports the passive approach to close a recessionary gap?
a. It is likely that policies will be subject to time lags.
b. Prolonged unemployment may cause the economy's potential real GDP to fall.
c. Workers' skills may grow rusty during a prolonged recession
d. It is likely that unemployed workers will drop out of the labor force.
e. Firms may neglect their capital stock during a prolonged recession.
a
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If a good is normal and its price increases,
a. the income effect will be positive and the substitution effect will be positive. b. the income effect will be negative and the substitution effect will be negative. c. the income effect will be positive and the substitution effect will be negative. d. the income effect will be negative and the substitution effect will be positive.
Explain how a diversified portfolio can reduce fluctuations in returns even when the economy as a whole is experiencing contractions and expansions.
What will be an ideal response?