If an Economy Is in a Recession, with Output Below

question 64

Multiple Choice

If an economy is in a recession, with output below its full-employment level, a(n) ______ to return the economy to its long-run equilibrium, which would cause the price level to_____

• A)expansionary; increase
• B)expansionary; decline
• C)contractionary; decline
• D)contractionary; increase

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Definitions:

Substitution Effect

The change in consumption patterns due to a change in the relative prices of goods, leading consumers to substitute one good for another that is relatively cheaper.

Income Effect

The variation in income for a person or within an economy, and its influence on the demand levels for a certain good or service.

Labor-Supply Curve

A graph showing the relationship between the quantity of labor supplied and the wage rate, typically illustrating how higher wages encourage more labor supply.

Income Effect

The change in an individual's or household's consumption resulting from a change in real income, influencing purchasing power.