The reason the short-run macro model suggests that the economy can operate either above or below its potential while in the long-run classical model the economy operates automatically at full employment is that
A) the short-run macro model is flawed and inaccurate
B) the classical model is flawed and inaccurate
C) the two models measure completely different aspects of the economy
D) in the short run,spending affects output,but not in the long run
E) in the short run the role of government in helping the economy return to equilibrium is not considered

Question

Quizplus · Accepted Answer

The short-run macro model considers the impact of spending on output in the short run, which means that in the short run the economy can operate either above or below its potential. However, in the long-run classical model, prices and wages adjust to changes in demand and supply until full employment is reached automatically. Therefore, the economy always operates at full employment in the long-run classical model.

The Reason the Short-Run Macro Model Suggests That the Economy