Which of the following automatically works to eliminate output gaps over time,bringing production back into line with potential output?

Question

Quizplus · Accepted Answer

Price changes and adjustments to wages are mechanisms through which firms adjust their production levels in response to changes in demand. As demand increases, they can raise prices and wages to incentivize more production, and as demand decreases, they can lower prices and wages to reduce production. Over time, these adjustments help to eliminate output gaps and bring production back in line with potential output. Monetary policy (choices A and B) can also be used to address output gaps, but it is not automatic and can take time to implement. Firms' efforts to produce in line with potential output (choice D) are part of the adjustment process described under choice C. Government mandates (choice E) are not typically used to address output gaps.

Which of the Following Automatically Works to Eliminate Output Gaps