Illustrate diagrammatically how a self-regulating economy removes itself from a recessionary gap.

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Answer 1

Question

Chapter 9, Problem 1VQP

To determine

Illustrate diagrammatically how a self-regulating economy removes itself from a recessionary gap.

Expert Solution & Answer

Explanation of Solution

Figure-1 shows the recessionary gap as follows:

Macroeconomics (Book Only), Chapter 9, Problem 1VQP

In Figure-1, the horizontal axis measures the real GDP and the vertical axis measures the price level.

If the economy is in the recessionary gap, then the level of output is less than the full employment level. Since there is surplus in the labor market, wage rate decreases, and it shifts the short-run aggregate supply (SRAS)) curve rightward. Thus, the equilibrium point occurs at Point 2 in Figure-1.

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Answer 2

Question

Chapter 9, Problem 1VQP

To determine

Illustrate diagrammatically how a self-regulating economy removes itself from a recessionary gap.

Expert Solution & Answer

Explanation of Solution

Figure-1 shows the recessionary gap as follows:

Macroeconomics (Book Only), Chapter 9, Problem 1VQP

In Figure-1, the horizontal axis measures the real GDP and the vertical axis measures the price level.

If the economy is in the recessionary gap, then the level of output is less than the full employment level. Since there is surplus in the labor market, wage rate decreases, and it shifts the short-run aggregate supply (SRAS)) curve rightward. Thus, the equilibrium point occurs at Point 2 in Figure-1.

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Answer 3

Question

Chapter 9, Problem 1VQP

To determine

Illustrate diagrammatically how a self-regulating economy removes itself from a recessionary gap.

Expert Solution & Answer

Explanation of Solution

Figure-1 shows the recessionary gap as follows:

Macroeconomics (Book Only), Chapter 9, Problem 1VQP

In Figure-1, the horizontal axis measures the real GDP and the vertical axis measures the price level.

If the economy is in the recessionary gap, then the level of output is less than the full employment level. Since there is surplus in the labor market, wage rate decreases, and it shifts the short-run aggregate supply (SRAS)) curve rightward. Thus, the equilibrium point occurs at Point 2 in Figure-1.

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Answer 4

Question

Chapter 9, Problem 1VQP

To determine

Illustrate diagrammatically how a self-regulating economy removes itself from a recessionary gap.

Expert Solution & Answer

Explanation of Solution

Figure-1 shows the recessionary gap as follows:

Macroeconomics (Book Only), Chapter 9, Problem 1VQP

In Figure-1, the horizontal axis measures the real GDP and the vertical axis measures the price level.

If the economy is in the recessionary gap, then the level of output is less than the full employment level. Since there is surplus in the labor market, wage rate decreases, and it shifts the short-run aggregate supply (SRAS)) curve rightward. Thus, the equilibrium point occurs at Point 2 in Figure-1.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 9, Problem 1VQP

To determine

Illustrate diagrammatically how a self-regulating economy removes itself from a recessionary gap.

Expert Solution & Answer

Explanation of Solution

Figure-1 shows the recessionary gap as follows:

Macroeconomics (Book Only), Chapter 9, Problem 1VQP

In Figure-1, the horizontal axis measures the real GDP and the vertical axis measures the price level.

If the economy is in the recessionary gap, then the level of output is less than the full employment level. Since there is surplus in the labor market, wage rate decreases, and it shifts the short-run aggregate supply (SRAS)) curve rightward. Thus, the equilibrium point occurs at Point 2 in Figure-1.

Answer 6

Chapter 9, Problem 1VQP

To determine

Illustrate diagrammatically how a self-regulating economy removes itself from a recessionary gap.

Expert Solution & Answer

Explanation of Solution

Figure-1 shows the recessionary gap as follows:

Macroeconomics (Book Only), Chapter 9, Problem 1VQP

In Figure-1, the horizontal axis measures the real GDP and the vertical axis measures the price level.

If the economy is in the recessionary gap, then the level of output is less than the full employment level. Since there is surplus in the labor market, wage rate decreases, and it shifts the short-run aggregate supply (SRAS)) curve rightward. Thus, the equilibrium point occurs at Point 2 in Figure-1.

Answer 7

Chapter 9, Problem 1VQP

To determine

Illustrate diagrammatically how a self-regulating economy removes itself from a recessionary gap.

Answer 8

Expert Solution & Answer

Explanation of Solution

Figure-1 shows the recessionary gap as follows:

Macroeconomics (Book Only), Chapter 9, Problem 1VQP

In Figure-1, the horizontal axis measures the real GDP and the vertical axis measures the price level.

If the economy is in the recessionary gap, then the level of output is less than the full employment level. Since there is surplus in the labor market, wage rate decreases, and it shifts the short-run aggregate supply (SRAS)) curve rightward. Thus, the equilibrium point occurs at Point 2 in Figure-1.