How can the O-ring theory help explain the existence of a low-level equilibrium that an economy may find itself in?
What will be an ideal response?
Explained on page 191.
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If the demand for bathing suits and supply of bathing suits both decrease, then definitely the equilibrium
A) price will decrease. B) price will increase. C) quantity will increase. D) quantity will decrease.
Is it possible for inflation and recession to occur simultaneously in an economy?
A) No, because prices cannot rise during a recession. B) No, because recession is caused by too little demand and inflation by too much demand. C) Yes, and this has happened several times in the U.S. economy since World War II. D) Yes, but it has not occurred since the Great Depression in the 1930s. E) Yes, but while it is logically possible it has never actually happened in any major industrialized economy.