The "No - Markets Fail Often" camp argues that in a recessionary gap, all of the following will happen except,
A) workers and employers accept unemployment instead of wage cuts.
B) consumer spending increases.
C) savings increase in loanable funds markets.
D) falling output creates pessimistic expectations that decrease business investment.
E) wages in labour markets are sticky.

Question

Quizplus · Accepted Answer

The "No - Markets Fail Often" camp argues that in a recessionary gap, consumer spending actually decreases due to high unemployment and pessimistic expectations about the economy. This is because there is a decrease in aggregate demand, which leads to lower output and higher unemployment. Choices A, C, D, and E are all characteristics of a recessionary gap according to this camp.

The "No - Markets Fail Often" Camp Argues That in a Recessionary