In a self-correcting model of the economy,falling inflation and falling real interest rates eventually eliminate
A) expansionary gaps.
B) recessionary gaps.
C) autonomous spending.
D) induced spending.
E) unemployment.

Question

Quizplus · Accepted Answer

In a self-correcting model of the economy, falling inflation and falling real interest rates will ultimately eliminate recessionary gaps, which occur when real GDP is below potential GDP. Expansionary gaps occur when real GDP is above potential GDP, so the correct answer is not A. Autonomous spending and induced spending are not directly affected by falling inflation and falling real interest rates, so the correct answer is not C or D. While falling inflation and falling real interest rates can help to reduce unemployment, this is not the main focus of a self-correcting model, so the correct answer is not E.

In a Self-Correcting Model of the Economy,falling Inflation and Falling