What is the ratchet effect? How does it apply to price level changes in the economy as aggregate demand changes?
What will be an ideal response?
A ratchet effect allows movement in one direction but not movement back. Some economists argue that when aggregate demand increases, there will be an increase in the price level, but when aggregate demand decreases, there is downward price inflexibility that prevents the price level from falling. They note that the price level has not declined since one year in the 1950 despite the fact that there have been many recessions since then. So a higher price level remains even when aggregate demand falls.
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If the number of workers in a country is 12,000 and its income per worker is $380, its gross domestic product is ________
A) $524,000 B) $618,000 C) $4,560,000 D) $1,240,000
Renee plans to graduate and enter the job market in the spring. Economists are forecasting a recession during the spring. As a result, she
a. is happy because unemployment rates are low during a recession b. is happy because salaries are usually higher during a recession c. does not care because the availability of jobs is not affected by whether there is a recession d. is unhappy because it is generally difficult to find a job during a recession e. favors increasing taxes to help head off the recession