3.7: Long Run Self Adjustment

Question 1

Difference between short run and long run

Answer 1

In the short run, wages and resources are sticky and will not change when the price level changes. In the long run, wages and resources are flexible and will change when price levels change

Question 2

Long Run and shifts

Answer 2

In the long run, wages and costs can increases or decrease causing aggregate supply to decrease or increase

Inverse relationship between wages and costs and AS

Question 3

Note

Answer 3

An increase in consumption or exports doesn’t cause economic growth; only investment causes growth as firms increase capital stock