Which statement is consistent with the short-run economic theories studied?
A) In the short run, output is determined by the amount of capital, labour, and technology; the interest rate adjusts to balance the supply and demand for money; and the price level adjusts to balance the supply and demand for loanable funds.
B) In the short run, output is determined by the amount of capital, labour, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; and the price level adjusts to balance the supply and demand for money.
C) In the short run, output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply and demand for money; and the price level is stuck.
D) In the short run, output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply and demand for loanable funds; and the price level adjusts to balance the supply and demand for money.

Question

Quizplus · Accepted Answer

This statement is consistent with the short-run economic theories studied. In the short run, output responds to the aggregate demand for goods and services, which is determined by factors such as consumer spending, government spending, and investment. The interest rate adjusts to balance the supply and demand for money, but the price level is sticky, meaning that it does not adjust immediately to changes in supply and demand. This is due to factors such as menu costs, wage rigidity, and social norms.

Which Statement Is Consistent with the Short-Run Economic Theories Studied