Which of the Following Statements Is NOT Consistent with a Self-Correcting

question 25

Multiple Choice

Which of the following statements is NOT consistent with a self-correcting economy?  

• A) Prices and wages are flexible. 
• B) A recessionary gap is corrected through falling wages and prices. 
• C) The short-run aggregate supply tends to shift until it intersects aggregate demand at potential GDP. 
• D) The best policy is to take an active approach to a recession or depression.

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Definitions:

Stock Market Boom

A period of rapid and significant rise in the value of shares traded in stock markets, reflecting optimism and economic growth.

Proverbial Bubble

A phrase referring to an unrealistic or highly speculative situation that is likely to collapse or burst, much like an actual bubble.

1920s

A decade marked by high prosperity in the United States (the Roaring Twenties), but ended with the stock market crash of 1929, leading to the Great Depression.

1990s

The decade extending from January 1, 1990, to December 31, 1999, characterized by significant technological, cultural, and political changes worldwide.