Which one of the following statements is MOST accurate?
A) In the long run, foreign output depends only on the available domestic supplies of factors of production.
B) In the short run, domestic output depends only on the available domestic supplies of factors of production.
C) In the long run, domestic output depends only on the available domestic supplies of factors of production.
D) In the long run and in the short run, domestic output depends only on the available domestic supplies of factors of production.
E) In the long run, domestic output depends only on the real exchange rate.

Question

Quizplus · Accepted Answer

In the long run, domestic output depends only on the available domestic supplies of factors of production. This is because in the long run, all inputs are considered to be variable and adjustable to achieve maximum output. In the short run, however, some inputs, such as labor and capital, are fixed, which means that output can only be increased by using those inputs more efficiently. Therefore, in the short run, domestic output depends on the available domestic supplies of factors of production, but in the long run, all inputs can be adjusted, and domestic output depends only on the available domestic supplies of factors of production.

Which One of the Following Statements Is MOST Accurate