What happens if wages and prices adjust very quickly in response to the various shocks to the economy? Does this make business cycle, expansions, and contractions in the economy, shorter or longer?

Business Dec 23, 2020

Expert Solution

An economy experiences various phases of the business cycle due to the dynamic nature of the market. If wages and market price fluctuates and adjusts quickly, it defines that people actively react in the change in the market factors. It is the situation of expansion in the economy as during this phase; people make various economic activities due to an increase in the aggregate demand in the economy.

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