Reliance on the economy's self-correcting mechanism for the elimination of the output gap shown in the diagram below can take a long time
A) only because wage growth may be slow to adjust downward.
B) only because growth in production costs may be slow to adjust downward.
C) only because inflation and inflation expectations may be slow to adjust downward.
D) only because aggregate demand and output may be slow to respond to interest rate cuts by the Bank of Canada.
E) because wage growth,growth in production costs,inflation and inflation expectations,and aggregate demand and output may be slow to adjust.

Question

Reliance on the economy's self-correcting mechanism for the elimination of the output gap shown in the diagram below can take a long time 
A) only because wage growth may be slow to adjust downward. 
B) only because growth in production costs may be slow to adjust downward. 
C) only because inflation and inflation expectations may be slow to adjust downward. 
D) only because aggregate demand and output may be slow to respond to interest rate cuts by the Bank of Canada. 
E) because wage growth,growth in production costs,inflation and inflation expectations,and aggregate demand and output may be slow to adjust.

Quizplus · Accepted Answer

Reliance on the economy's self-correcting mechanism for the elimination of the output gap shown in the diagram below can take a long time because all the factors mentioned in the answer choices (wage growth, growth in production costs, inflation and inflation expectations, and aggregate demand and output) can be slow to adjust. Therefore, option E is the best choice as it includes all the possible reasons for slow adjustment.

Reliance on the Economy's Self-Correcting Mechanism for the Elimination of the Output