Which of the following correctly describes the automatic mechanism through which the economy adjusts to long-run equilibrium?
A)the leftward shift of the short-run aggregate supply curve that occurs after a recession
B)the rightward shift of the short-run aggregate supply curve that occurs after a recession
C)the leftward shift of the aggregate demand curve that occurs after a recession
D)the rightward shift of the aggregate demand curve that occurs after a recession

Question

Quizplus · Accepted Answer

The correct mechanism is the rightward shift of the short-run aggregate supply curve that occurs after a recession. This is because in the long-run, wages and prices are flexible and can adjust to changes in the economy, allowing firms to produce at their natural rate of output. As wages and prices adjust, the short-run aggregate supply curve shifts to the right, and the economy returns to its long-run equilibrium level of output.

Which of the Following Correctly Describes the Automatic Mechanism Through