An economy adjust on its own to close a recessionary gap because there is

Question

Quizplus · Accepted Answer

In a recessionary gap, there is an excess of supply in the economy, causing downward pressure on prices and nominal wages. As nominal wages fall, firms' costs decrease, allowing them to supply more goods and services at lower prices, shifting the short-run aggregate supply (SRAS) curve rightward to close the recessionary gap. Therefore, there is pressure on nominal wages to fall, causing the SRAS curve to shift rightward.

An Economy Adjust on Its Own to Close a Recessionary