When economists refer to the economy's self-correcting mechanism, they are referring to the fact that the
A)economy will react automatically to a recessionary gap through inflation.
B)economy will react automatically to an inflationary gap through deflation.
C)economy will react automatically to an inflationary gap through inflation.
D)simple multiplier is greater than the complex multiplier.

Question

Quizplus · Accepted Answer

The self-correcting mechanism refers to the economy's ability to return to full employment on its own. In the case of an inflationary gap, the economy self-corrects through rising prices (inflation), which reduces aggregate demand and brings the economy back to equilibrium.

When Economists Refer to the Economy's Self-Correcting Mechanism, They Are