Glossary · Macro · Aggregate demand and supply

Self-correction

The economy’s own way of closing an output gap. In a recessionary gap unemployed workers accept lower wages, costs fall, SRAS shifts right and output returns to potential at a lower price level. In an inflationary gap the process runs in reverse. It works, but slowly.

Also called: self-correcting mechanism, long-run adjustment

Watch it happen step by stepTaught in: Macro Equilibrium

Related terms

Recessionary gapInflationary gapShort-run aggregate supply (SRAS)

More from aggregate demand and supply

Aggregate demand (AD)Business cycleLong-run aggregate supply (LRAS)Macroeconomic equilibriumOutput gapPotential output

Definitions are the start

See the term used, not just defined.

The full course teaches every term in context, with worked examples, interactive graphs and practice questions that remember what you get wrong.
Read the lessonStart the course