Suppose the economy is experiencing a recessionary gap. In the long run, if aggregate demand does not change, the following events happen: the money wage rate ________, unemployment ________, and the price level ________.
A) falls; rises; falls
B) falls; falls; falls
C) rises; rises; rises
D) rises; falls; rises

Question

Quizplus · Accepted Answer

In a recessionary gap, the money wage rate falls because of the excess supply of labor, leading to a decrease in production costs. This results in a decrease in unemployment as firms hire more workers at lower wages, and the price level falls due to the decreased cost of production.

Suppose the Economy Is Experiencing a Recessionary Gap