Pregunta
Question 32
If a market economy has a self-correcting mechanism, when output is lower than potential or full-employment output,
(1) resource prices will increase.
(2) the economy will fall into a more severe recession.
(3) changes will occur that will automatically guide the economy back to full
employment.
(4) orolonged unemployment such as was experienced during the Great Depression will
occur.
If a market economy has a self-correcting mechanism, when output is lower than potential or full-employment output,
(1) resource prices will increase.
(2) the economy will fall into a more severe recession.
(3) changes will occur that will automatically guide the economy back to full
employment.
(4) orolonged unemployment such as was experienced during the Great Depression will
occur.
Ask by Bond Schofield. in Cayman Islands
Mar 31,2025
Solución de inteligencia artificial de Upstudy
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Responder
The correct option is (3) changes will occur that will automatically guide the economy back to full employment.
Solución
In a market economy with a self-correcting mechanism, when output is lower than potential or full-employment output, we need to evaluate the provided options based on economic principles.
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Resource prices will increase: This is incorrect because when output is below potential, resource prices typically decrease due to lower demand for labor and materials.
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The economy will fall into a more severe recession: This is not necessarily true in a self-correcting economy, as mechanisms are in place to guide recovery.
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Changes will occur that will automatically guide the economy back to full employment: This is correct. In a self-correcting economy, adjustments in wages and prices will help restore full employment.
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Prolonged unemployment such as was experienced during the Great Depression will occur: This is not a characteristic of a self-correcting mechanism, as it implies a failure of the self-correcting process.
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In a self-correcting market economy, the adjustment of resource prices plays a crucial role. When output is below potential, resource prices generally decrease, making it cheaper for firms to hire labor and produce goods. This encourages economic activity, prompting a gradual return to full employment as businesses start to expand due to lower costs.
Historically, economies have shown resilience through cycles of boom and bust. For instance, after the recession in the early 1980s, the U.S. economy rebounded as decreased wages and prices stimulated demand. The concept of self-correction reflects this historical pattern, demonstrating that markets can eventually find a way to restore balance, even in challenging times.
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