What would happen if employment is continually above or below its full-employment level?
A) the aggregate demand curve would shift to move the economy back to full employment.
B) the economy's self-correcting mechanism would move the economy back to full employment.
C) the aggregate supply curve would become horizontal.
D) the aggregate supply curve would become steeper.
E) the economy's self-correcting mechanism would break down.

Question

Quizplus · Accepted Answer

The economy's self-correcting mechanism would move the economy back to full employment if employment is continually above or below its full-employment level. If employment is above full employment, inflationary pressures would occur, and wages and prices would increase. This would result in a decrease in aggregate demand and a shift to the left in the aggregate demand curve, moving the economy back to full employment. Conversely, if employment is below full employment, there would be a decrease in demand for goods and services, resulting in a decrease in prices and wages. This would cause an increase in aggregate demand, shifting the curve to the right, and moving the economy back to full employment.

What Would Happen If Employment Is Continually Above or Below