FIGURE 24-1 Refer to Figure 24-1.If the economy is currently producing output of Y₀ and wages are sticky downwards,then the A)economy will eventually move to point B. B)economy will move only slowly toward point A as wages slowly adjust. C)economy will quickly move to point A. D)level of output will decrease below Y₀. E)AD curve will eventually shift to the right and return the economy to its full-employment level of output.

Question

Quizplus · Accepted Answer

If wages are sticky downwards, it means they may not adjust quickly in response to changes in the economy. Therefore, the economy will only slowly move towards point A as wages slowly adjust. It is unlikely to quickly move to point A or decrease below Y₀ unless there are additional factors at play, such as a sudden decrease in AD. The AD curve shifting to the right and returning the economy to its full-employment level of output is not necessarily guaranteed and dependent on other factors.