Author Question: Explain how the economy moves back to full employment from recession. Be sure to detail what happens ... (Read 100 times)

xroflmao

  • Hero Member
  • *****
  • Posts: 515
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?

Question 2

Proponents of the new classical macroeconomics do not believe which of the following?
 
  A) Wages and prices will adjust rapidly in the economy.
  B) Workers and firms use information contained in Fed policy to form inflation expectations.
  C) The economy will normally be at its potential level.
  D) Expansionary monetary policy can be an effective policy tool.



katieost

  • Sr. Member
  • ****
  • Posts: 358
Answer to Question 1

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.

Answer to Question 2

D



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question


 

Did you know?

During pregnancy, a woman is more likely to experience bleeding gums and nosebleeds caused by hormonal changes that increase blood flow to the mouth and nose.

Did you know?

Nearly 31 million adults in America have a total cholesterol level that is more than 240 mg per dL.

Did you know?

Intradermal injections are somewhat difficult to correctly administer because the skin layers are so thin that it is easy to accidentally punch through to the deeper subcutaneous layer.

Did you know?

Although not all of the following muscle groups are commonly used, intramuscular injections may be given into the abdominals, biceps, calves, deltoids, gluteals, laterals, pectorals, quadriceps, trapezoids, and triceps.

Did you know?

Drug abusers experience the following scenario: The pleasure given by their drug (or drugs) of choice is so strong that it is difficult to eradicate even after years of staying away from the substances involved. Certain triggers may cause a drug abuser to relapse. Research shows that long-term drug abuse results in significant changes in brain function that persist long after an individual stops using drugs. It is most important to realize that the same is true of not just illegal substances but alcohol and tobacco as well.

For a complete list of videos, visit our video library