How the self-correcting mechanism would work

Reference no: EM13212501

Assume an economy in long and short run equilibrium in the Aggregate Deamnd/Aggregate Supply model. There is a sudden drop in consumer confidence in the solvency of pension funds. Explain, with support from a graph, how this is shown in the AD/AS model. 2. Further explain with support from a graph how the self-correcting mechanism would work in the above example. What are the key assumptions in believing that the self-correcting mechanism works to escape from economic recession?

Reference no: EM13212501

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