In the long run, which assumption allows the economy to return to full employment without government intervention?

Question

Multiple choice question.

That recessions are not responsive to monetary policy

That wages and prices are downwardly flexible

That recessions are short-lived

That wages and prices are inflexible

Answer 1

The correct choice is:

That wages and prices are downwardly flexible.

This assumption allows the economy to adjust and return to full employment in the long run as wages and prices can decrease in response to economic conditions, facilitating recovery from recessions without the need for government intervention.