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Figure: Aggregate Demand and Fiscal Policy
-(Figure: Aggregate Demand and Fiscal Policy)Refer to the figure.For an economy in a recession at point Z,what will happen in the long run in the absence of any government action to counter the recession?
A) Wages will become flexible and spending growth will recover to increase aggregate demand,moving the economy to point X.
B) Wages will remain sticky and aggregate demand will fall farther,moving the economy to point Y.
C) Aggregate demand will rise above the LRAS curve,moving the economy to point W.
D) The economy will remain in a recession at point Z.

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Use the following to answer questions 
Figure: Aggregate Demand and Fiscal Policy 
-(Figure: Aggregate Demand and Fiscal Policy)Refer to the figure.For an economy in a recession at point Z,what will happen in the long run in the absence of any government action to counter the recession?
A) Wages will become flexible and spending growth will recover to increase aggregate demand,moving the economy to point X. 
B) Wages will remain sticky and aggregate demand will fall farther,moving the economy to point Y. 
C) Aggregate demand will rise above the LRAS curve,moving the economy to point W. 
D) The economy will remain in a recession at point Z.

Quizplus · Accepted Answer

In the long run, wages and prices become more flexible, allowing the economy to adjust naturally. This flexibility in wages can lead to increased spending growth, which in turn increases aggregate demand, moving the economy back to its long-run equilibrium at point X.

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