Question
Question 23
When an economy is temporarily operating at an output that is beyond its full-employment rate,
(1) excess demand in resource markets will lead to higher resource prices, which will
increase costs and direct the economy toward full employment.
(2) lower wages and prices will quickly restore full employment.
(3) excess supply in resource markets will eventually lead to lower resource prices,
(4) only restrictive fiscal policy will direct the economy back to full employment.
(4)
When an economy is temporarily operating at an output that is beyond its full-employment rate,
(1) excess demand in resource markets will lead to higher resource prices, which will
increase costs and direct the economy toward full employment.
(2) lower wages and prices will quickly restore full employment.
(3) excess supply in resource markets will eventually lead to lower resource prices,
(4) only restrictive fiscal policy will direct the economy back to full employment.
(4)
Ask by Hobbs Reese. in Cayman Islands
Mar 31,2025
Upstudy AI Solution
Tutor-Verified Answer
Answer
When the economy produces more than its full-employment level, higher demand for resources causes prices to rise. This increases costs and helps bring the economy back to full employment.
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Mind Expander
When an economy operates beyond its full-employment level, it often leads to a temporary boom that can increase inflationary pressures. This situation usually causes businesses to bid up wages to attract labor, eventually pushing up costs. As these costs increase, firms may reduce production, helping the economy find its way back to full employment in a more sustainable manner.
In real-world scenarios, this phenomenon is often observed in post-war economic booms or during rapid recovery phases after a recession. Policymakers typically adjust fiscal and monetary policies to cool down the economy, balancing demand and supply without harming long-term growth. Adjustments such as increasing interest rates or reducing government spending can help tame excess demand and stabilize prices.
