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In the short-run, the firms hire fewer workers, overall consumption in the economy falls,

In the short-run, the firms hire fewer workers, overall consumption in the economy falls,



MULTIPLE CHOICE (identify the one best answer below and explain your reasoning for each option): When businesses are pessimistic
about the future and invest less than they had planned, then:

a. In the short-run, the firms hire fewer workers, overall consumption in the economy falls, aggregate demand falls,
and the price level increases.
b. Over time (long-run), prices and nominal wages adjust downwards; this decreases the costs of production,
and decreases the short-run aggregate supply.
c. In the long-run, the self-correcting mechanism results in a return to full-employment GDP but at a higher price level.
d. All of the above. e. None of the above.

Johnson 09-Nov-2017

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