An economy may not quickly and automatically eliminate a recessionary output gap because wages
A)never change in response to changes in the demand for labour.
B)have a tendency to be sticky downward.
C)have a tendency to fall too quickly.
D)have a tendency to rise too quickly.
E)are flexible but prices have a tendency to be sticky downward.

Question

Quizplus · Accepted Answer

Wages tend to be sticky downward, meaning they do not adjust quickly in response to changes in the demand for labour. This can make it difficult for the economy to quickly eliminate a recessionary output gap. As a result, unemployment may remain high and output may remain below potential for an extended period of time.

An Economy May Not Quickly and Automatically Eliminate a Recessionary