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SCAB: Someone who starts working or continues to work for a firm while a labor union is engaged in a strike of the firm. Scab is common term used by union members for the more polite name strikebreaker. Striking union members are more inclined to use even more derogatory terms. Such workers are used by employers to force union members to stop their strike and return to work. While strikers don't like it, labor laws guarantee that nonstriking workers can cross the picket line and go to work.
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                           SELF CORRECTION, RECESSIONARY GAP: The automatic process in which the aggregate market eliminates a recessionary gap created by a short-run equilibrium that is less than full employment through decreases in wages (and other resource prices). The self-correction mechanism is triggered by short-run resource market imbalances that are closed by long-run price flexibility. The self-correction process of the aggregate market also acts to close an inflationary gap with higher wages (and other resource prices). Self correction is seen as shifts of the short-run aggregate supply curve caused by changes in wages and other resource prices. The self-correction mechanism acts to close a recessionary gap with lower wages and an increase in the short-run aggregate supply curve.With a recessionary gap, short-run equilibrium real production is less than full-employment real production, meaning resource markets have surpluses. In particular, labor unemployment exceeds the natural rate. Self correction is the process in which these temporary imbalances are eliminated through flexible prices as the aggregate market achieves long-run equilibrium. The key to this process is that changes in wages and other resource prices cause the short-run aggregate supply curve to shift. | Closing A Recessionary Gap |  |
The self-correction closure of a recessionary gap in the aggregate market can be illustrated using the exhibit to the right. The vertical axis measures the price level (GDP price deflator) and the horizontal axis measures real production (real GDP). This graph presents the two aggregate supply curves--long run and short run--but no aggregate demand curve. The vertical curve labeled LRAS is the long-run aggregate supply curve which marks full-employment real production. The positively-sloped curve labeled SRAS is then the short-run aggregate supply curve. The positioning of the aggregate demand curve and the point of intersection with the short-run aggregate supply curve indicates the recessionary gap. - Recessionary Gap: Click the [Recessionary Gap] button to reveal this output gap. With a recessionary gap, short-run equilibrium real production is less than full-employment real production, meaning resource markets have surpluses, and in particular labor is unemployed.
- Closing the Gap: In the long-run, this recessionary gap is closed with lower wages and an increase in short-run aggregate supply. To illustrate this result, click the [Lower Wages] button. This button-clicking shifts the short-run aggregate supply curve to the right. A new equilibrium is achieved by the intersection of the new SRAS curve and the original AD curve. This intersection also coincides with the LRAS curve.
In the long run, wages and resource prices are flexible and they decline enough to eliminate imbalances in the resource markets. The result of declining wages (and other resource prices) is a reduction in production cost. A decrease in production cost causes an increase in short-run aggregate supply, or a rightward shift of the SRAS curve.Note that the SRAS curve shifts rightward until it intersects BOTH the LRAS and AD curves at full-employment real production, which is long-run equilibrium. In particular, the new long-run equilibrium is at the full-employment level of real production. The SRAS curve absolutely MUST shift until this long-run equilibrium is reached. If the aggregate market does NOT reach long-run equilibrium, resource market imbalances persist, resource prices and production cost decline further, and the SRAS curve shifts more. However, once long-run equilibrium is reached, resource market imbalances are eliminated, resource prices and production cost do not change, and the SRAS curve does not shift any further.
Recommended Citation:SELF CORRECTION, RECESSIONARY GAP, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2024. [Accessed: October 13, 2024].
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Today, you are likely to spend a great deal of time visiting every yard sale in a 30-mile radius trying to buy either a flower arrangement with daisies and carnations for your uncle or a coffee cup commemorating next Thursday. Be on the lookout for florescent light bulbs that hum folk songs from the sixties.
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Parker Brothers, the folks who produce the Monopoly board game, prints more Monopoly money each year than real currency printed by the U.S. government.
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"Progress begins with the belief that what is necessary is possible. " -- Norman Cousins, editor, writer
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OECD
Organization for Economic Co-operation and Development
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