The economy's self-correcting mechanism refers to the way money wages react to either a recessionary gap or an inflationary gap.

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The economy's self-correcting mechanism refers to the way money wages adjust in response to changes in supply and demand, ultimately leading the economy back to full employment. When there is a recessionary gap (unemployment), wages will tend to fall, making hiring cheaper for businesses and increasing employment. Conversely, when there is an inflationary gap (overheating), wages will tend to rise, making hiring more expensive and ultimately leading to a slowdown in economic activity.

The Economy's Self-Correcting Mechanism Refers to the Way Money Wages