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According to Classical Economics, what happens when the economy self-regulates from a recessionary gap to its long-run equilibrium?

A. The short-run aggregate supply curve stays the same.
B. The aggregate demand curve shifts left.
C. Wages decrease.
D. The long-run aggregate supply curve shifts left.



Answer :

GinnyAnswer

Final answer:

In Classical Economics, adjustments in the nominal wage shift the short-run aggregate supply curve to close recessionary or inflationary gaps, and policy makers may implement stabilization policies.


Explanation:

When the economy self-regulates from a recessionary gap to its long-run equilibrium according to Classical Economics, the nominal wage changes, shifting the short-run aggregate supply curve to the left or right depending on the situation. This adjustment closes the recessionary or inflationary gap. Policy makers can respond with nonintervention or use stabilization policy to address these gaps.


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