The table below shows data for five economies of similar size.Real GDP is measured in billions of dollars.Assume that potential output for each economy is $340 billion.
TABLE 24-1
-Refer to Table 24-1.How is the adjustment asymmetry demonstrated when comparing Economy A to Economy E?
A)The size of the output gap is the same in Economies A and E,but wages are rising in A and falling in E.
B)The output gap is larger in Economy A,yet wages are changing more slowly.
C)The output gap is much larger in Economy E,so wages are changing at a faster rate.
D)The size of the output gap is the same in Economies A and E but wages are falling more slowly in A than they are rising in E.
E)There is insufficient data with which to observe the adjustment asymmetry.

Question

The table below shows data for five economies of similar size.Real GDP is measured in billions of dollars.Assume that potential output for each economy is $340 billion.
  TABLE 24-1
-Refer to Table 24-1.How is the adjustment asymmetry demonstrated when comparing Economy A to Economy E?
A)The size of the output gap is the same in Economies A and E,but wages are rising in A and falling in E. 
B)The output gap is larger in Economy A,yet wages are changing more slowly. 
C)The output gap is much larger in Economy E,so wages are changing at a faster rate. 
D)The size of the output gap is the same in Economies A and E but wages are falling more slowly in A than they are rising in E. 
E)There is insufficient data with which to observe the adjustment asymmetry.

Quizplus · Accepted Answer

The table shows that the output gap is the same in Economies A and E at $25 billion. However, wages are falling more slowly in Economy A (-0.5%) than they are rising in Economy E (1.5%). This demonstrates adjustment asymmetry, as the same level of output gap is being treated differently in terms of wage adjustment.

The Table Below Shows Data for Five Economies of Similar