What is meant by an economy’s self-correcting mechanism? Explain the process through which self-correcting mechanism reduces inflationary gap.
What will be an ideal response?
The economy’s self-correcting mechanism refers to the way money wages react to either a recessionary gap or an inflationary gap. Wage changes shift the aggregate supply curve and therefore change equilibrium GDP and the equilibrium price level.If aggregate demand is exceptionally high, the economy may reach a short-run equilibrium above full employment. When this occurs, the tight situation in the labor market soon forces nominal wages to rise. Because rising wages increase business costs, prices increase. As higher prices cut into consumer purchasing power and net exports, the inflationary gap begins to close.
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Which of the following can a firm use to defend a successful product's brand name?
A) The firm can apply for a trademark to ban other firms from using the product's name. B) The firm can increase the amount it spends on advertising for the product. C) The firm can obtain a patent on the brand name. D) The firm can attempt to copyright the brand name.
One determinant of the long-run average unemployment rate is the
a. market power of unions, while the inflation rate depends primarily upon government spending. b. minimum wage, while the inflation rate depends primarily upon the money supply growth rate. c. rate of growth of the money supply, while the inflation rate depends primarily upon the market power of unions. d. existence of efficiency wages, while the inflation rate depends primarily upon the extent to which firms are competitive.
Which of the following workers is least likely to lose his/her job during a recession?
A. A roofer B. A carpenter C. A police officer D. An automobile assembly worker
Which of the following is not a function of money?
A. Store of wealth B. Medium of exchange C. Unit of account D. Equity instrument