How will an inflationary boom end if an economy is left to self-correct?
A) Sticky wages eventually will fall, which allows labor markets to return to equilibrium and full employment.
B) Sticky wages eventually will rise, which raises the costs of production and moves the economy to a full-employment output.
C) Consumer demand eventually will fall, which reduces pressure on prices and output.
D) Consumer demand eventually will rise, which raises prices so much that purchasing power falls and reduces output.

Question

Quizplus · Accepted Answer

In an inflationary boom, wages are typically sticky upwards, meaning they will eventually rise. This increases production costs, which can reduce output and help the economy return to full-employment output.

How Will an Inflationary Boom End If an Economy Is