The self-correcting property of the economy means that output gaps are eventually eliminated by:
A. increasing or decreasing potential output.
B. government policy.
C. decreasing inflation only.
D. increasing or decreasing inflation.
Answer: D
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Does the quantity theory correctly predict the effects of money growth on inflation?
What will be an ideal response?
In the classical model with an open economy, an increase in government purchases may not cause complete crowding out, but crowding out will be complete worldwide
a. True b. False
Which of the following is a primary cause of exchange rate movements in the short run?
a. Changes in relative interest rates. b. Changes in expectations of future exchange rates. c. Changes in relative prices. d. Changes in economic conditions such as relative GDPs. e. None of the above.
Which of the following conditions is characteristic of a monopolistically competitive firm in long-run equilibrium?
a. P > demand and P = MR b. ATC > demand and MR = MC c. P > MC and demand = ATC d. P < ATC and demand > MR