Basic introductory macroeconomics question

[Sobend 939]

Currently on aggregate supply/demand/SRAS + LRAS curves, yeah.

Comment on the following statement: “Inflationary and recessionary gaps are nothing to worry about because the economy has a built in mechanism that causes (*I think this is supposed to mean closes*) either type of gap automatically.“

 

Based on what I have learned in the chapter I would want to say yes, eventually everything does straighten out. But I'm not sure that's entirely true. Your thoughts?

Edited January 14, 2013 by Sobend

[reepicheep 324]

Well, I got a 5 on my IB economics exam (out of a 7, fyi :P), but I forgot most of it. If there's one thing that you should always do, though, is draw a graph. If you draw a graph with both the SRAS and the LRAS curve, and you can identify the inflationary and recessionary gaps, you'll have answered your question. This could be a load of rubbish, though, since I've not touched any economics book in 8 months. I do think that you should be able to infer it from the graph though.