Figure 17-8

-In Figure 17-8, which of the following movements reflects the closing of a recessionary gap through the economy's self-correcting mechanism?

Question

Figure 17-8
 
-In Figure 17-8, which of the following movements reflects the closing of a recessionary gap through the economy's self-correcting mechanism?

Quizplus · Accepted Answer

The movement from point D to point E reflects the closing of a recessionary gap through the economy's self-correcting mechanism. This is because at point D, the equilibrium output is below the potential output, which indicates a recessionary gap. However, over time, the economy's self-correcting mechanism will lead to a decrease in wages and prices, which will increase aggregate demand and shift the AD curve to the right. This shift in AD will eventually lead to a new equilibrium at point E, where output is at the potential level. Therefore, the movement from point D to point E reflects the closing of the recessional gap through the self-correcting mechanism.

Figure 17-8 -In Figure 17-8, Which of the Following Movements Reflects the Following