Explain how the economy moves back to full employment from recession. Be sure to detail what happens to short-run aggregate supply, unemployment, equilibrium GDP and the price level
What will be an ideal response?
When an economy enters a recession, sales fall and unemployment rises via the automatic adjustment mechanism. The unemployment resulting from the recession makes workers more willing to accept lower wages. The slack demand will make firms willing to accept lower prices for their goods. In addition, the decline in the price level that occurs when the economy went into recession also makes workers willing to accept lower wages, and firms accept lower prices. This shifts the short-run aggregate supply curve to the right and moves the economy back toward potential GDP. Unemployment falls back to the natural level, and the price level falls.
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Knowledge has become measurably more important in today's economy
Indicate whether the statement is true or false
Efficiency wages, above equilibrium minimum wage rates, and higher union wages are likely to
A) reduce the equilibrium real wage rate. B) decrease the natural unemployment rate. C) increase the equilibrium real wage rate. D) increase cyclical unemployment. E) increase the natural unemployment rate.
Which of the following is likely to be true if the Fed buys government bonds held by the U.S. commercial banks? a. Banks will reduce the amount of loans, and this will increase the money supply in the economy. b. Banks will give more loans, and this will increase the money supply in the economy
c. Banks will give more loans, and this will decrease the money supply in the economy. d. Banks will reduce the amount of loans, and this will decrease the money supply in the economy.
In the 1940s and 1950s, about one-third of U.S. workers belonged to unions, but today, only about one-fifth of U.S. workers belong to unions
a. True b. False Indicate whether the statement is true or false