If short-run equilibrium output is above full-employment output,then in the long run input prices will
A) decrease and output will increase.
B) increase and output will be unaffected.
C) increase and short-run aggregate supply will increase.
D) increase and output will fall.
E) decrease and output will fall.

Question

Quizplus · Accepted Answer

If short-run equilibrium output is above full-employment output, this means that resources are being used at an unsustainable rate leading to higher input prices. In the long run, these input prices will increase further which will lead to higher costs of production and hence lower output. Thus, in the long run, output will fall.

If Short-Run Equilibrium Output Is Above Full-Employment Output,then in the Long