The Long-Run Self-Correcting Mechanism That Eliminates a Recessionary Gap (Y

Multiple Choice

The long-run self-correcting mechanism that eliminates a recessionary gap (Y < Y*) in the economy requires

A) only that the growth in wages and production costs slow down over time.
B) only that the inflation rate declines over time.
C) only that the central bank lowers the nominal interest rate by more than the fall in the inflation rate,so that the real interest rate declines over time.
D) only that aggregate demand and output increase over time.
E) that the growth in wages and production costs slow down,the inflation rate declines,the real interest rate declines,and aggregate demand and output increase over timE.