ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Input prices are more flexible than output prices.
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Aggregate demand always equals aggregate supply.
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All people in the economy fully adjust to the changes in economic conditions.
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People do not need to change their behaviours according to the changes in economic conditions.
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Detailed explanation-1: -The long run is a period of time in which all factors of production and costs are variable. In the long run, firms are able to adjust all costs, whereas in the short run firms are only able to influence prices through adjustments made to production levels.
Detailed explanation-2: -The long-run self-adjustment is a procedure through which the economy resets itself to its equilibrium point after a market shock in the economy. In the long run, prices and wages are flexible. In the long run, the equilibrium is restored at full employment output due to changes in prices and wages.
Detailed explanation-3: -In economics, the long-run is a theoretical concept in which all markets are in equilibrium, and all prices and quantities have fully adjusted and are in equilibrium. The long-run contrasts with the short-run, in which there are some constraints and markets are not fully in equilibrium.
Detailed explanation-4: -The answer is C). In the long run, the economy will be produced at the potential output level.