When studying the short-run behavior of the economy, an assumption of ______ is more plausible, in contrast to studying the long-run equilibrium behavior of an economy, when an assumption of ______ is more plausible.
A) inflation; unemployment
B) unemployment; inflation
C) flexible prices; sticky prices
D) sticky prices; flexible prices

Question

Quizplus · Accepted Answer

In the short run, prices and wages are often sticky, meaning they do not adjust immediately to changes in economic conditions. This assumption is useful for understanding how the economy reacts to various shocks over shorter periods. In contrast, in the long run, prices and wages are assumed to be flexible, adjusting to reflect changes in supply and demand, which helps in analyzing the economy's equilibrium behavior over extended periods.

When Studying the Short-Run Behavior of the Economy, an Assumption