Why is it possible that the economy will not self-correct out of a recessionary gap?
What will be an ideal response?
Unlike the case of an inflationary gap, a recessionary gap requires falling prices and wages for the economy to self-correct. Wages, the price of labor, have a downward rigidity that prevents rapid decreases necessary to reach a new level of equilibrium price level. If money wages do not fall, the aggregate supply curve will not shift outward. Although self-correction is inevitable, it may take so long that citizens and policy makers may lose patience and promote active stabilization policy measures.
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The fact that wants cannot be fully satisfied with available resources reflects the definition of
A) the what tradeoff. B) scarcity. C) the big tradeoff. D) for whom to produce.
Economists tell stories
a. in order to breathe life into economic theory and personalize abstract ideas b. because economics is an art, not a science c. as a way of rigorously testing economic theory d. because doing so is a required part of the scientific method e. to show how their theory can predict at least one real-world situation
Which of the following terms is used to refer to the ability of people to exercise authority over the resources they own?
a. natural rights b. property rights c. input control d. collective control
What happens to total revenue associated with a linear demand curve as price falls?
What will be an ideal response?