The stability of consumption over the business cycle and the ability of changes in the real interest rate to redirect aggregate demand indicate that
A) government policy can improve the performance of the economy.
B) market economies are inherently unstable.
C) a market economy has a self-correcting mechanism that will help guide it toward full employment.
D) recessions will be lengthy, and high rates of unemployment will persist for a period of time even after the economy recovers.

Question

Quizplus · Accepted Answer

The stability of consumption over the business cycle and the ability of changes in the real interest rate to redirect aggregate demand suggest that a market economy has a self-correcting mechanism that will guide it toward full employment. This means that while there may be fluctuations, the market economy has the ability to correct itself without the need for heavy government intervention.

The Stability of Consumption Over the Business Cycle and the Ability