One of the first things I do with my students is make it clear to them that they will have to speak in my class. There are no exceptions and my questions do not go away with a mumbled one word answer or stock phrase.
Very early on, I make it clear that my classroom is a space where people MUST make mistakes. They are encouraged and not laughed at.
When all that is established, I move onto the correcting.
It’s a balance: Get them to use the language properly and not to want to give up.
I will never corrected every single error someone makes, but I will correct most. Some I will let slip because we are focusing on another aspect of the language. Some I will let slip because I have already corrected a few of their mistakes and I don’t want them to lose heart or their flow.
Sometimes I will stop them mid-speech, sometimes I will tell them when they have finished talking. Sometimes I will record them and when I play it back to them, let them correct their errors.
As a teacher, you have many methods at your disposal. A good teacher uses them all. A great teacher knows when to use them. Don’t expect to be a great teacher at first. Strive to be a good teacher. In other words: Learn what methods are at your disposal.