Question

Some economists believe the economy is self-regulating. What does this mean?A. It means the economy can remove itself from recessionary and inflationary gaps and produce at Natural Real GDP. B. It means the economy is always in long-run equilibrium producing Natural Real GDP. C. It means that inflationary gaps naturally change into recessionary gaps. D. It means that recessionary gaps naturally change into inflationary gaps. E. C and D.

Answer 1

Answer:

A. It means the economy can remove itself from recessionary and inflationary gaps and produce at Natural Real GDP

Explanation:

The fundamental theory of the classical economy is that the market economy is self regulating. The classical economists believe that an economy is always capable of achieving real GDP, that is GDP when resources are fully employed. And that, time to time, when GDP falls below or exceed the real GDP, the market economy has self-adjustment mechanisms to bring it back to the real GDP level. So the classical economists believes that countries can remove itself from recessionary and inflationary gap to produce at natural real GDP. Classical economists believes in self regulating democracies and capitalistic market developments.