In a recessionary gap,the implications of downward wage inflexibility are that there will be
A) further leftward shifts of AD that worsen unemployment.
B) no further leftward shifts of AD,allowing the shifts in SRAS to close the recessionary gap.
C) no further leftward shifts of SRAS,allowing the shifts in AD to close the recessionary gap.
D) no rightward shifts of SRAS,allowing for the possibility of persistent high unemployment.

Question

Quizplus · Accepted Answer

Downward wage inflexibility prevents wages from decreasing, which in turn can prevent the short-run aggregate supply (SRAS) from shifting rightward. This inflexibility can lead to persistent high unemployment because firms cannot lower wages to decrease costs and increase employment, potentially prolonging a recessionary gap.

In a Recessionary Gap,the Implications of Downward Wage Inflexibility Are