Suppose the Economy Is Experiencing a Recessionary Gap

question 25

Multiple Choice

Suppose the economy is experiencing a recessionary gap. In the long run, if aggregate demand does not change, the following events happen: the money wage rate ________, unemployment ________, and the price level ________.

• A) falls; rises; falls
• B) falls; falls; falls
• C) rises; rises; rises
• D) rises; falls; rises

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Definitions:

Real Return Bonds

Government-issued bonds that provide a return adjusted for inflation, ensuring the purchasing power of the bond's earnings is maintained over time.

Zero Coupon Bond

A type of bond that does not pay periodic interest payments and is issued at a significant discount from its face value.

Interest Rates

The cost of borrowing money or the return on invested funds, expressed as a percentage of the principal.

Percentage Increase

A metric used to calculate the rise in value or quantity of an item over a period, expressed as a fraction of its initial value.