When self-correcting forces cure a contractionary gap,
A)money wages and real wages both increase
B)money wages remain constant while real wages fall
C)money wages and real wages both decrease
D)money wages fall while real wages increase
E)real wages must increase regardless of what happens to money wages

Question

Quizplus · Accepted Answer

In a contractionary gap, unemployment is higher than the natural rate, leading to downward pressure on wages. As money wages decrease, real wages also decrease, helping to restore full employment.

When Self-Correcting Forces Cure a Contractionary Gap