Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Increased demand for goods and services
B
Decrease in nominal wages and input costs
C
Government intervention in the economy
D
Increase in taxes on businesses
Understanding the Answer
Let's break down why this is correct
Answer
When an economy is in a recession, it means that it is not producing as much as it could, and many people are out of work. If resource prices, like the costs of raw materials or wages, decrease, it becomes cheaper for businesses to produce goods and services. This can encourage companies to hire more workers and increase their production, helping the economy move back toward full employment. For example, if the price of steel falls, a car manufacturer can produce more cars at a lower cost, leading to more jobs and economic activity. Therefore, the most likely cause of the adjustment back to full employment is that lower resource prices make it easier for businesses to grow and hire more people.
Detailed Explanation
When resource prices go down, it costs less to make things. Other options are incorrect because Some might think that more demand alone fixes the economy; People may believe that government actions are always needed to fix the economy.
Key Concepts
Long Run Economic Adjustment
Short-Run Aggregate Supply (SRAS)
Recessionary Output Gap
Topic
Long Run Economic Adjustment
Difficulty
medium level question
Cognitive Level
understand
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