Share This Article:

Economic Definition of recessionary gap self-correction. Defined.

Offline Version: PDF

Term recessionary gap self-correction Definition: The automatic process through which the aggregate market achieves long-run equilibrium by eliminating a recessionary gap created by short-run equilibrium. With a recessionary gap short-run equilibrium real production is less than full-employment real production, meaning resource markets have surpluses, and in particular labor is unemployed. Self-correction is the process in which these temporary imbalances are eliminated through flexible prices as the aggregate market achieves long-run equilibrium. The key to this process is shifts of the short-run aggregate supply curve caused by changes in wages and other resource prices. The long-run result is lower wages and an increase in short-run aggregate supply.

 

« market self-correction | sellers' expectations »

Permalink: https://glossary.econguru.com/economic-term/self-correction,+recessionary+gap

Alphabetical Reference to Over 2,000 Economic Terms