Self-Correction (Long-Run)

Concepts

If Economy is not at Full-Employment
Flexible Wages in Long-Run
Trigger Shifts in SRAS
Bring Economy Back to Long-Run Equilibrium

Overview

If an economy could stay at full-employment forever, that would be wonderful. Unfortunately, we don’t live in a perfect world. Things change that take an economy out of long-run equilibrium. When that happens, the government has two general choices: 1. Implement policy changes to influence the economy or 2. Leave the economy alone. If the government chooses the latter, in the long-run the economy will self-correct. If the economy slows down and experiences a recessionary gap in GDP, then eventually wages will fall becauses businesses won’t be able to pay their workers as much. This will reduce the costs of production, which triggers a rightward shift in the SRAS. As wages fall and fall, the SRAS shifts right and right until the economy gets back to full-employment GDP at a lower price level. If the economy surges and experiences an inflationary gap, the oppositte will occur.

Materials

Lecture

Video Coming at Later Date

Quiz

Reminders Before Taking Quiz:

When you are asked “What Period?” please only put the one digit number of your class period. For example, if you have this class 1st period, just put 1 in the box for your response.
The password to login is CASE SENSITIVE, so please be conscious of this as you type in your password.
If it appears to be timing out when you login, try the following troubleshooting steps:
1. Restart your phone (hard shut down and turn it back on)
2. Turn off WiFi (access quiz through your data carrier)
3. Click the “Classroom Link” provided in the initial email. Login, and then select this quiz from the list.
4. If you lost the email, you can access the “Classroom Link” by clicking here. Enter your email address and password to log in and PLEASE BE SURE TO SELECT THE PROPER QUIZ!!!
  1. If you take the quiz once and would like to take it again to get a better grade, sometimes it will disappear from the “pending” section. If that’s the case, click the “completed” section and select the quiz you want to retake.