If the economy is in long run equilibrium at full employment, the level of overall economic activity is not affected by changes in the price level due to:
A) the fact that firms' profits increase with the price level.
B) the existence of sticky prices.
C) the fact that prices and input costs change simultaneously and in the same direction.
D) the fact that prices increase more slowly than input costs.

Question

Quizplus · Accepted Answer

In the long run, both prices and input costs adjust simultaneously and proportionally, meaning that changes in the price level do not affect real output or employment.

If the Economy Is in Long Run Equilibrium at Full