The self-correcting tendency of the economy means that falling inflation eventually eliminates:
A)expansionary gaps.
B)recessionary gaps.
C)exogenous spending.
D)unemployment.

Question

Quizplus · Accepted Answer

Lower inflation rates eliminate recessionary gaps because the SRAS curve shifts to downward to bring the economy back to long-term equilibrium. The Fed accommodates this shift by lowering interest rates as inflation falls according to its existing reaction function.

The Self-Correcting Tendency of the Economy Means That Falling Inflation