BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

Solutions

Chapter
Section
BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

For each of the three theories for the upward slope of the short-run aggregate-supply curve, carefully explain the following:

a. how the economy recovers from a recession and returns to its long-run equilibrium without any policy intervention

b. what determines the speed of that recovery

Sub part (a):

To determine

Why short run aggregate supply curve is upward sloping.

Explanation

The supply is dependent upon the price level in the economy. When the price level is higher, the suppliers will be receiving higher income, and this would incentivize them to increase the supply in the economy and vice versa. The aggregation of the supply curves of all the firms in the economy is known as the aggregate supply curve. In the short run period, the aggregate supply curve represents the relationship between the price level in the economy and the supply by the firms.

According to the sticky wage theory, in the short run period, the economy is in a recession because the fall in the general price level has increased the real wage rate of the economy. But the demand for the labor in the economy will be lower since the economy is in recession. Thus, in the long run, the sticky wages will adjust to the level of recession in the economy, which will reduce the real wage rates and bring back the economy into equilibrium and full employment level...

Sub part (b):

To determine

Why short run aggregate supply curve is upward sloping.

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Answers to Your Study Problems

Solve them all with bartleby. Boost your grades with guidance from subject experts covering thousands of textbooks. All for just $9.99/month

Get As ASAP

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

Why should policymakers think about incentives?

Principles of Microeconomics (MindTap Course List)

Cash discounts are offered to encourage prompt payment by customers who buy on account.

College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)

COST OF TRADE CREDIT AND BANK LOAN Lamar Lumber buys 8 million of materials net of discounts) on terms of 3/5, ...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)