The principal way in which an economy self-corrects from an inflationary gap is through
A)deflation, which increases purchasing power.
B)inflation, which reduces purchasing power.
C)disinflation, which maintains purchasing power.
D)price level decreases, which stimulate production.

Question

Quizplus · Accepted Answer

In an inflationary gap, where demand exceeds supply, prices tend to rise, reducing the purchasing power of money. This reduction in purchasing power eventually decreases consumption, helping to self-correct the economy by bringing demand closer to the economy's capacity to supply.

The Principal Way in Which an Economy Self-Corrects from an Inflationary