If firms reduce investment spending and the economy enters a recession, which of these contributes to the adjustment that causes the economy to return to its long-run equilibrium?

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5 May, 21:03

If firms reduce investment spending and the economy enters a recession, which of these contributes to the adjustment that causes the economy to return to its long-run equilibrium?

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Answers (1)

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Chris Stanton · Answer 1

If workers agree to accept lower wages

Explanation:

Recession is a business situation in which economic activities are at a decline as a result of reduction in spending.

When this occurs, it affects firms and their investments and as such firms have to reduce their investment to ensure that the firm stays afloat and also trying to stabilize the economy. As part of trying to stabilize the economy, workers have to agree to accept lower wages till the economy is at equilibrium again. Accepting lower wages returns the economy to long-run equilibrium.

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