Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
A decrease in nominal wages leads to a rightward shift in the SRAS curve, resulting in increased output and employment.
B
The government implements a stimulus package to increase aggregate demand and boost economic growth.
C
The central bank lowers interest rates to encourage borrowing and spending in the economy.
D
Firms increase prices in response to rising input costs, leading to a leftward shift in the SRAS curve.
Understanding the Answer
Let's break down why this is correct
Answer
Long run economic adjustment happens when an economy that is not producing enough goods and services, known as a recessionary output gap, starts to recover over time. For example, imagine a town where a factory closes, leading to job losses and less money being spent in local shops. As people struggle, some may move away, but eventually, new businesses may open up, creating jobs again. Over time, workers may gain new skills or start their own businesses, helping the economy grow back to its potential. This adjustment process shows how economies can heal and adapt, even after tough times.
Detailed Explanation
When wages go down, it costs less for businesses to hire workers. Other options are incorrect because Some think that just spending more money can fix the economy; Lowering interest rates might seem helpful, but it doesn't solve the long-term problems.
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
Ready to Master More Topics?
Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.