The Self-Correcting Property of the Economy Means That Output Gaps

question 4

Multiple Choice

The self-correcting property of the economy means that output gaps are eventually eliminated by:

• A)increasing or decreasing inflation.
• B)decreasing inflation only.
• C)increasing or decreasing potential output.
• D)government policy.

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Definitions:

Cognitive Error

A systematic pattern of deviation from norm or rationality in judgment, often leading to inaccurate conclusions or perceptions.

Heuristics

Cognitive shortcuts or rules of thumb that simplify decision making by enabling quicker judgments with less effort but potentially at the expense of accuracy.

Availability Heuristic

A mental shortcut that relies on immediate examples that come to a person’s mind when evaluating a specific topic, concept, method, or decision.

Representative Heuristic

A cognitive bias in which an individual categorizes a situation based on how similar it is to their prototype of a particular event or behavior, often leading to errors in decision making or judgment.