The self-correcting mechanism to return the economy to potential output from output gaps is the change in:
A) potential output.
B) aggregate demand.
C) short-run aggregate supply.
D) the real interest rate by the central bank.

Question

Quizplus · Accepted Answer

The self-correcting mechanism involves changes in short-run aggregate supply (SRAS) as prices and wages adjust over time, bringing the economy back to its potential output without the need for policy intervention.

The Self-Correcting Mechanism to Return the Economy to Potential Output