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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

Represent the following situations diagrammatically:

  1. a. An economy in which AD increases as the economy is self-regulating out of a recessionary gap
  2. b. An economy in which AD decreases as the economy is self-regulating out of an inflationary gap

(a)

To determine

Estimate the self-regulation out of a recessionary gap.

Explanation

Self-regulating, recessionary gap:

In an economy, the recessionary gap arises when the actual unemployment rate exceeds the natural unemployment rate; it explains that the unemployment rate in an economy is high. If wage contracts expire, then the firms introduce new contract and that pay the lower wage rate to the workers. The decrease in the production cost leads to shift the short run aggregate supply curve (SRA...

(b)

To determine

Estimate the self-regulation out of an inflationary gap.

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