Suppose the economy is experiencing a recessionary gap. In the long run, if aggregate demand does not change, the money wage rate ________, unemployment ________, and the price level ________.
A)rises; rises; rises
B)falls; falls; falls
C)rises; falls; rises
D)falls; rises; falls

Question

Suppose the economy is experiencing a recessionary gap. In the long run, if aggregate demand does not change,  the money wage rate ________, unemployment ________, and the price level ________.
A)rises; rises; rises
B)falls; falls; falls
C)rises; falls; rises
D)falls; rises; falls

Quizplus · Accepted Answer

In a recessionary gap, aggregate demand is below potential output. In the long run, if aggregate demand does not change, the economy will move towards its long-run equilibrium. At this equilibrium, the money wage rate will fall, unemployment will fall, and the price level will fall.

Suppose the Economy Is Experiencing a Recessionary Gap