If the Economy Is in a Recessionary Gap

question 284

Multiple Choice

If the economy is in a recessionary gap:

• A) it will remain in a recession forever without any kind of government intervention.
• B) nominal wages will fall and SRAS will shift to the right until the economy is at full employment.
• C) AD will shift to the right and prices of goods will rise until the economy goes back to producing potential output.
• D) nominal wages will rise, SRAS will shift to the left, and the economy will eventually restore itself.

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Definitions:

Depletion

An accounting method used to allocate the cost of extracting natural resources, such as minerals or timber, from the earth, reflecting the consumption of the resource over time.

Expense Account

An account used in accounting to record costs or expenses incurred by a business or individual for operational purposes.

Metal Ores

Naturally occurring solid materials from which metals can be extracted through mining and processed for use.

Residual Value

The forecasted financial value of an asset as it approaches the close of its effective life.