The Long-Run Self-Correcting Mechanism That Eliminates Recessionary and Expansionary Output

Multiple Choice

The long-run self-correcting mechanism that eliminates recessionary and expansionary output gaps in the economy assumes

A) only that the growth in wages and production costs adjusts over time.
B) only that the inflation rate adjusts over time.
C) only that the central bank adjusts the real interest rate over time in response to changes in the inflation rate.
D) only that aggregate demand and actual output (Y) adjust towards potential output (Y*) over time.
E) that the growth in wages and production costs,the inflation rate,the real interest rate,and aggregate demand and output all adjust over timE.