Suppose the economy is at full employment, and energy prices spike. In the short run, output will _____; in the long run, output will _____.

Question

Quizplus · Accepted Answer

In the short run, a spike in energy prices will cause an increase in production costs for firms, which will lead to a decrease in output as producers reduce production to maintain profitability. However, in the long run, firms can adjust their production processes and invest in alternative energy sources or more energy-efficient technologies, which will allow them to maintain or even increase output despite the higher energy prices.

Suppose the Economy Is at Full Employment, and Energy Prices