Question

What is the different between the short run and long run in macroeconomy?

What is the different between the short run and long run in macroeconomy?

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Answer #1

In macroeconomy, prices and wages are sticky therefore, they do not adjust well to the changes in the market in the short-run. However, in the long-run prices and wages are fully flexible and they fully adjust to the market changes. Also, in the short-run, the economy may operate below or above the potential output level and unemployment rate can be higher lower than the natural rate unemployment. However, in the long-run, the economy operates at the potential output level and the unemployment level is equal to the natural rate of unemployment.

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