AD-AS Model Self-Correction Mechanism
In the aggregate demand-aggregate supply (AD-AS) model, which of the following describes a similarity in the long-run self-adjustment from a recessionary gap and an inflationary gap?
A
Both processes require immediate and direct government intervention to restore equilibrium.
B
Both self‐adjustments restore equilibrium instantly without any temporary adverse effects on prices or wages.
C
Both indicate that the economy will permanently remain either below or above its full‐employment output.
D
Both mechanisms prompt adjustments in production costs and input prices that gradually realign actual GDP with potential GDP over time.
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