The economy's self-correcting mechanism to eliminate a recessionary gap relies on

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The economy's self-correcting mechanism relies on falling wage rates that shift the aggregate supply curve outward, allowing firms to lower the costs of production and increase output, which leads to an increase in employment and output levels. This eventually eliminates the recessionary gap by bringing the economy back to potential output. Falling interest rates may stimulate aggregate demand, but they do not necessarily address the underlying cause of the recessionary gap. Rising wage rates or increases in the price level would only exacerbate the recessionary gap by shifting the aggregate supply curve inward, leading to further decreases in output and employment.

The Economy's Self-Correcting Mechanism to Eliminate a Recessionary Gap Relies