If resource prices are "sticky" downward and a recessionary gap develops,the short-run aggregate supply curve will:
A)shift leftward to return the economy to its potential output.
B)shift rightward to return the economy to its potential output.
C)become a horizontal straight line.
D)not shift rightward to return the economy to its potential output.
E)become the long-run aggregate supply curve.

Question

Quizplus · Accepted Answer

When resource prices are "sticky" downward, it means they do not easily decrease even when there is less demand for them, such as during a recession. This stickiness can prevent the short-run aggregate supply curve from shifting rightward to adjust for a recessionary gap and return the economy to its potential output. Instead, the curve may remain in its current position, not aiding in the automatic correction of the recessionary gap.

If Resource Prices Are "Sticky" Downward and a Recessionary Gap