Self-correcting mechanisms that dampen the economic cycle:

Consumer demand* {tends to lag changes in income, relatively stable over business cycle}
Real interest rates {rise during boom and fall in depression}
Resource prices {rise during boom and fall in depression}

*Permanent income hypothesis:

• Consumption depend on expected long-run income; people spread temporary increase in income over several future periods =>smoothing

In expansion,
Output exceed potential capacity, higher interest rate à decrease AD ; higher resources prices => decrease supply.

In contraction,
Reverse.
If fast process- don’t need monetary and fiscal policy;
If slow process- need monetary and piscal policy