According to the simple extended AD-AS model, if the economy is in a recession, prices and nominal wages will eventually fall, and the short-run aggregate supply curve increases, so that real output returns to its full-employment level in the long run.

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According to the simple extended AD-AS model, if the economy is in a recession, prices and nominal wages will eventually fall, causing a movement down along the short-run aggregate supply curve, which increases in the process. This, in turn, leads to a decrease in the price level and an increase in output. Eventually, as the market adjusts, nominal wages decline as well, causing another shift to the right of the short-run aggregate supply curve until the economy reaches its full-employment level in the long run. Therefore, the statement is true.

According to the Simple Extended AD-AS Model, If the Economy