How will a recession end if an economy is left to self-correct?
A) Taxes eventually will rise, which gives the government more spending power.
B) Taxes eventually will fall, which leads to an increase in aggregate demand.
C) Sticky wages eventually will fall, which allows labor markets to return to equilibrium and full employment.
D) Sticky wages eventually will rise, which leads to an increase in aggregate demand.

Question

Quizplus · Accepted Answer

Sticky wages, which are wages that do not fall quickly in response to a decrease in demand for labor, eventually adjust downwards in a self-correcting economy. This adjustment allows labor markets to return to equilibrium and full employment, helping to end a recession.

How Will a Recession End If an Economy Is Left