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How does the economy self-correct and move from a short-run inflationary gap to a long-run equilibrium?
The economy self-corrects from a short-run inflationary gap to long-run equilibrium through the adjustment of prices and wages. As demand exceeds supply, prices rise, leading to increased costs for businesses. This prompts firms to reduce output and employment, ultimately decreasing aggregate demand. Over time, as wages and input prices adjust downward, the economy moves back toward its potential output, restoring equilibrium.
What else can I help you with?
Is the South African economy classified as a command or market economy?
yes, South Africa is a Pure market economy
What type of economy does Finland have?
mixed economy
What type of economy does togo have?
Togo has a market economy.
What is the economy of the northwest territories in Canada like?
the economy is 200,456
What is canadas economy based on?
A free market economy
Define inflationary economy under US GAAP?
define an inflationary economy
Is the United States economy in an inflationary or recessionary gap?
Recessionary.
Equilibrium and economies scale in market economy?
Equilibrium and economies scale in market economy
What economy uses the equilibrium price?
a market economy
What actions should the government take if the economy is in an inflationary period?
During an inflationary period, the government should consider taking actions such as increasing interest rates, reducing government spending, and implementing policies to control the money supply. These measures can help to curb inflation and stabilize the economy.
What does too much money in the economy lead to?
A high level of capital in the economy exerts and inflationary pressure. With this, prices can rise and the value of the money goes down.
How will the government policy of increasing federal state or local taxes could eventually lower inflation?
if inflation is increasing that means the economy is over producing and that the economy has an inflationary gap which means the equilibrium GDP(where total spending is equal to total production) is greater then potential GDP(full employment GDP). Increasing taxes will reduce the disposable income that consumer have which will then reduce consumer expenditure(which is one of the components of GDP or aggregate demand). This will lower the equilibrium GDP to be the same as potential GDP and will lower the equilibrium for the supply and demand graph for the entire economy to a lower price level reducing price levels. Reducing government spending or decreasing transfer payments will have the same affect on the economy.
Why is equilibrium not possible in a dynamic economy?
Equilibrium is not possible in a dynamic economy because the economy is constantly changing and evolving. Factors such as technological advancements, shifts in consumer preferences, and changes in government policies can all impact the economy and prevent it from reaching a stable equilibrium. This constant state of flux makes it difficult for the economy to settle into a state of balance.
What has the author Masahiro Okuno written?
Masahiro Okuno has written: 'On the efficiency of competitive equilibrium in infinite horizon economy and money' -- subject(s): Equilibrium (Economics) 'On the efficiency of competitive equilibrium in infinite horizon economy and money' -- subject(s): Equilibrium (Economics)
During an inflationary period what is one way the U.S. government might use its fiscal policy to slow down the economy?
During an inflationary period, the U.S. government might use contractionary fiscal policy to slow down the economy by reducing government spending or increasing taxes. By cutting spending on public programs or raising taxes, disposable income for consumers decreases, leading to lower demand for goods and services. This reduction in demand can help alleviate inflationary pressures, stabilizing prices in the economy.
When the leakages and injections of the economy are balanced it is called what?
equilibrium
What monetary policy should be implemented to correct an inflationary economy?
a sale of bonds to decrease the money supply, increasing interest rates, these are recessionary measures used to slow down the economy.
