The main process by which a recessionary gap is eliminated is a(n)

increase in wages that shifts the aggregate supply curve inward.
drop in wages that shifts the aggregate demand curve inward.
increase in wages that shifts the aggregate demand curve outward.
drop in wages that shifts the aggregate supply curve outward

Expert Solution

Answer: drop in wages that shifts the aggregate supply outwards.

Recessionary gap occurs when when an economy produces below its potential level. It occurs when there is a gap between actual output and potential output of the economy. When actual output falls short of potential output, there should be an increase in aggregate supply. If wages are lowered, firms will hire more employees which will reduce unemployment and will increase the production.

Rahul Sunny answered 2 years ago

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