As shown in Panel (b)of Exhibit 16-2, assume the economy adopts a nonintervention policy. Which of the following would cause the economy to self-correct? A)Competition among firms for workers increases the nominal wage and SRAS shifts rightward. B)Long-run equilibrium will be established at Y₁ and P₂. C)Long-run equilibrium will be established at Y₁ and P₃. D)Competition among unemployed workers decreases nominal wages and SRAS shifts rightward.

Question

Quizplus · Accepted Answer

In a nonintervention policy, the economy self-corrects through adjustments in wages and prices. When there is competition among unemployed workers, nominal wages decrease, leading to a rightward shift in the Short-Run Aggregate Supply (SRAS) curve, helping the economy return to long-run equilibrium.

As Shown in Panel (B)of Exhibit 16-2, Assume the Economy