Question

If markets throughout the global economy all have flexible and continually adjusting prices, then:

A. all market-oriented economies will implement coordinated wage reductions.
B. each economy will always head for its natural rate of unemployment.
C. each economy must shift in aggregate demand and create additional employment.
D. all changes in prices and wages will create additional employment.

Answer 1

Answer: B. each economy will always head for its natural rate of unemployment.

Explanation: This is a representation of a perfectly elastic economy, a perfectly elastic economy is a flexible economy where prices are undergoing constant adjustments due to the flexibility of the economy,prices will adjust following market conditions. The higher the price the lesser the quantity demanded and the supply,in this situation the consumers will be the major determinant of the adjustments in price.