If resource prices are "sticky" downward and a recessionary gap develops in an economy, the short-run aggregate supply curve will _____
A) shift leftward to return the economy to its potential output.
B) shift rightward to return the economy to its potential output.
C) become a horizontal straight line.
D) not shift rightward to return the economy to its potential output.
E) become the long-run aggregate supply curve.

Question

Quizplus · Accepted Answer

If resource prices are sticky downward, it means that they will not decrease easily in response to a recessionary gap. This will result in a situation where the short-run aggregate supply curve will not shift rightward to return the economy to its potential output, as it would if resource prices were not sticky downward. Therefore, the correct answer is D – the short-run aggregate supply curve will not shift rightward to return the economy to its potential output.

If Resource Prices Are "Sticky" Downward and a Recessionary Gap