Self-correcting mechanism reveals that
A)real wages will increase if there is an increase in price.
B)nominal wages will fall if there is inflationary gap.
C)nominal wages will increase if there is recessionary gap.
D)in the long run economy will be in equilibrium at potential GDP.

Question

Quizplus · Accepted Answer

The self-correcting mechanism in the economy is called the natural rate of unemployment. In the long run, the natural rate of unemployment aligns with the equilibrium rate of unemployment, and the economy operates at potential GDP. This means that the economy is at full employment, and there is no inflationary or recessionary gap. Therefore, option D is the correct choice.

Self-Correcting Mechanism Reveals That