If households and firms cut back on spending because they expect other households and firms to do so, and this self-fulfilling prophecy causes a recession, then this would be an example of
A)insider-outsider relationships.
B)efficiency wage theory.
C)a coordination failure.
D)a price-level surprise.

Question

Quizplus · Accepted Answer

A coordination failure occurs when economic agents fail to coordinate their actions, leading to suboptimal outcomes like a recession due to reduced spending based on expectations.

If Households and Firms Cut Back on Spending Because They