The Self-Correcting Mechanism to Return the Economy to Potential Output

question 79

Multiple Choice

The self-correcting mechanism to return the economy to potential output from output gaps is the change in:

• A) potential output.
• B) aggregate demand.
• C) short-run aggregate supply.
• D) the real interest rate by the central bank.

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Definitions:

Insurance Premium

The amount of money an individual or organization pays for an insurance policy, providing coverage against specific risks over a defined period.

Expected Loss

a calculation used in finance and insurance to estimate the average financial loss or cost associated with an investment or insurance policy over a period.

Adverse Selection

A situation in which one party in a transaction has more information than the other, leading to an imbalance and potentially poor market outcomes, commonly seen in insurance markets.

Insurance

A financial product or agreement that provides compensation for specific losses or damages in return for payments made.