The automatic mechanism can best be described as
A) the process of the economy adjusting back to potential GDP without any action taken by the government.
B) the result of monetary policy implemented by the Fed restoring full employment.
C) how fiscal policy is used to return the economy to its potential.
D) using rule-based policies to stabilize the economy.

Question

Quizplus · Accepted Answer

The automatic mechanism refers to the inherent self-correcting processes within the economy that allow it to naturally adjust back to its potential GDP without any intervention from the government. This can occur through adjustments in prices, wages, and interest rates, among other factors. Monetary and fiscal policies may also play a role in stabilizing the economy, but the automatic mechanism operates independently of any government action.

The Automatic Mechanism Can Best Be Described as