AP Macroeconomics / Unit 3: National Income and Price Determination
3.7 Long-Run Self-Adjustment
Notes
Without policy, wages and input prices eventually adjust:
- Recessionary gap: wages fall → SRAS shifts right → back to full employment.
- Inflationary gap: wages rise → SRAS shifts left.
Practice
In a recessionary gap with no policy, eventually:
Self-correction.
In an inflationary gap, self-adjustment raises:
Back to potential.
After self-adjustment, output returns to:
Long-run equilibrium.
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