Question

What is the impact of a rise in price expectations in the short run and in the long run?

Answer 1

In short run if there will be rise in price expectations then firm will earn higher profit while in long run it will be adjusted.In long run all markets are in equilibrium and all prices and quantities have fully adjusted and are in equilibrium.while in short run there are some constraints and markets are not fully in equilibrium.In microeconomics there are no fixed factors of production in the long run so that there is enough time for adjustment .while in macroeconomics,the long run is the period when general price level ,wages rate and expectations fully adjusted but in short run it is not adjusted.