Which of the following is occurring as the macro economy is adjusting from the short run to the long run?
A)Wages and other factor prices are adjusting to close output gaps.
B)Potential output is adjusting to close inflationary or recessionary gaps.
C)Wages and other factor prices remain constant.
D)Aggregate demand shocks are causing deviations from potential output.
E)Aggregate supply shocks are causing deviations from potential output.

Question

Quizplus · Accepted Answer

In the transition from the short run to the long run in macroeconomics, wages and other factor prices adjust to close output gaps. This adjustment helps the economy return to its potential output level, eliminating inflationary or recessionary gaps without the need for potential output itself to adjust.

Which of the Following Is Occurring as the Macro Economy