Why is it possible that the economy will not self-correct out of a recessionary gap?
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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If the value of the U.S. dollar changes from 1.2 euros to 1.4 euros, we would expect that the United States would experience a ________ in exports and a ________ in imports
A) rise; rise B) fall; fall C) rise; fall D) fall; rise
Assume the table has recorded the total output and prices of the only two goods produced. Looking at the figures in the table and using them to construct the GDP deflator, we can note the GDP deflator in 2003 was:
A. 135
B. 74
C. 109
D. 105
Operations of the Trading Desk of the Federal Reserve Bank of New York are typically conducted
A. no more often than once per month. B. within a one-hour period during each day. C. once a year. D. no more often than once per week.
If a country passes a labor law limiting the number of hours of work per week, GDP would ________ and leisure would ________
A) decrease; increase B) increase; increase C) decrease; decrease D) increase; decrease