The Long-Run Self-Correcting Mechanism That Eliminates an Expansionary Output Gap

Multiple Choice

The long-run self-correcting mechanism that eliminates an expansionary output gap (Y > Y*) in the economy assumes that

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