Q1. Why do proponents of active policy recommend government intervention to close an expansionary gap? Briefly discuss.
Q2. Why might an active policy approach be more politically popular than a passive approach, especially during a recession?
Q3. Some economists argue that only unanticipated increases in the money supply can affect real GDP. Explain why this may be the case.
Q4. What is the policy credibility and how is it relevant to the problem of reducing high inflation? How is credibility related to the time inconsistency problem?