Suppose the economy is experiencing a recessionary gap.In the long run,if aggregate demand does not change the money wage rate ________,unemployment ________,and the price level ________.
A) falls; rises; falls
B) falls; falls; falls
C) rises; rises; rises
D) rises; falls; rises

Question

Quizplus · Accepted Answer

In the long run, the economy will adjust to the natural rate of unemployment and the money wage rate will fall until labor market equilibrium is achieved. This will result in a decrease in unemployment. As the factor costs decrease, the aggregate supply will shift to the right leading to a decrease in the price level. Therefore, in the long run, the money wage rate falls, unemployment falls, and the price level falls.

Suppose the Economy Is Experiencing a Recessionary Gap