If an economy is operating at short-run equilibrium below the full-employment level of real GDP, the self-correction model result is that :
A) unemployment increases.
B) unemployment falls.
C) cyclical unemployment increases.
D) frictional and structural unemployment increase.

Question

Quizplus · Accepted Answer

In the self-correction model, when an economy is operating below the full-employment level of real GDP, there is a shortage of labor and resources, leading to upward pressure on wages and prices. This, in turn, encourages firms to increase production, leading to an increase in employment and a reduction in unemployment. Therefore, the correct answer is B, unemployment falls.

If an Economy Is Operating at Short-Run Equilibrium Below the Full-Employment