SELF-CORRECTION, RECESSIONARY GAP: 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. See also | recessionary gap | aggregate market | short-run aggregate market | long-run aggregate market | short-run aggregate supply curve | aggregate supply determinants | wage | resource prices | resource prices | self-correction, inflationary gap | self-correction, market | full employment | surplus | shortage | unemployment | contraction | business cycle |
