Which of the following correctly describes the automatic mechanism through which the economy adjusts to long-run equilibrium?
A)The leftward shift in short-run aggregate supply that occurs after a recession.
B)The rightward shift in short-run aggregate supply that occurs after a recession.
C)The leftward shift in aggregate demand that occurs after a recession.
D)The rightward shift in aggregate demand that occurs after a recession.

Question

Quizplus · Accepted Answer

The automatic mechanism through which the economy adjusts to long-run equilibrium is called the self-correcting mechanism. This mechanism involves a rightward shift in short-run aggregate supply after a recession, which leads to lower prices and a return to full employment in the long-run. Option A and C both involve leftward shifts, which would further delay the return to equilibrium, and option D involves a rightward shift in aggregate demand which is not a part of the self-correcting mechanism.

Which of the Following Correctly Describes the Automatic Mechanism Through