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NAN Print Last Name, First Name 6. In a self-regulating economy, inflationary gaps are automatically eliminated in the le run by: a. decreases in wage rates that cause short-run aggregate supply to shift rightwo decreases in wage rates that cause short-run aggregate supply to shift left word increases in wage rates that cause short-run aggregate supply to shift rightward increases in wage rates that cause short-run aggregate supply to shift leftward Assume the economy is initially in equilibrium at the full-employment level of If businesses and consumers become pessimistic regarding future economic conditie , causing the level ceteris paribus, the aggregate demand curve will shift to the of output to left; rise left; fall b. right; fall d. right; rise c. 8 . Economists that advocate a macroeconomic policy of laissez-faire: believe the economy is self-regulating only if the government intervenes to me the economy to equilibrium at natural real GDP. believe the economy is self-regulating and will automatically move to equilibrium at natural real GDP in the long run. also advocate central planning and government control of resources, d. also advocate active government intervention in the economy. Which of the following summarizes the process for closing a recessionary gap if the economy is self-regulating? Labor shortages put upward pressure on wages, which leads to higher costs of production and a decrease in short-run aggregate supply Labor shortages put downward pressure on wages, which leads to increases in employment and spending and an increase in aggregate demand Unemployed resources put upward pressure on the price level, which leads to higher wages, increases in spending and an increase in aggregate demand d. Unemployed resources put downward pressure on resource prices, which leads to lower costs of production and an increase in short-run aggregate supply Which of the following summarizes the process for closing an inflationary gap if the economy is self-regulating? a. Labor shortages put upward pressure on wages, which leads to higher costs of production and a decrease in short-run aggregate supply Labor shortages put downward pressure on wages, which leads to increases in employment and spending and an increase in aggregate demand Unemployed resources put upward pressure on the price level, which leads to higher wages, increases in spending and an increase in aggregate demand Unemployed resources put downward pressure on resource prices, which lower costs of production and an increase in short-run aggregate supply 1 Chapter 7 Assignments 142

Answer 1

For question 6 -

Statement - In a self regulating economy, inflationary gaps are automatically eliminated in the long run by:

Answer - Increases in wage rates that cause short-run aggregate supply to shift leftward

Explanation - A self regulating economy is the one where the market forces and not the government decide the eventual state of the economy. It means there are not outside interference in the economy.

In case of inflationary gaps in the long run, inflation leads to a seeming increase in the wages. As wages go up, there is an increase in demand which could not be always matched by an increase in the supply. This in turn leads to the aggregate supply graph shifting leftwards.