The economy's self-correcting mechanism
A) prevents the economy from ever being in disequilibrium
B) guides the economy to full employment in the long run
C) maintains a steady long-run price level
D) is a short-run adjustment process
E) is controlled by the Fed

Question

Quizplus · Accepted Answer

The economy's self-correcting mechanism refers to the ability of the economy to adjust itself back to full employment in the long run, even if there are short-run fluctuations or shocks to the system. This is achieved through changes in prices, wages, and interest rates, which eventually restore equilibrium in the economy. Therefore, option B is the correct choice. Options A, C, and D are incorrect as they do not accurately describe the self-correcting mechanism, while option E is incorrect as the Fed does not control the self-correcting mechanism but rather influences it through its monetary policy actions.

The Economy's Self-Correcting Mechanism