In the basic AD/AS model, which of the following is a defining characteristic of the adjustment process that takes the economy from the short run to the long run?
A)factor prices are assumed to respond to output gaps
B)firms cannot operate near their normal capacity
C)technology used in production is endogenous
D)the level of potential output fluctuates with the price level
E)factor supplies are assumed to be varying

Question

Quizplus · Accepted Answer

Factor prices are assumed to adjust in response to output gaps in the long run. This allows the economy to reach its potential output level and operate at full capacity, which is a defining characteristic of the long run in the AD/AS model.

In the Basic AD/AS Model, Which of the Following Is