The short-run model is built on which of the following?
i. The economy is constantly being hit by "shocks."
ii. Economic policy has no impact on output.
iii. There is trade-off between output and inflation.
A) i only
B) i and iii
C) ii and iii
D) ii only
E) i, ii, and iii

Question

Quizplus · Accepted Answer

The short-run model is built on the assumption that the economy is constantly being hit by "shocks" (i) and there is a trade-off between output and inflation (iii), known as the Phillips curve relationship. However, it recognizes that economic policy can have an impact on output in the short run, although this impact may not be sustainable over the long term. Therefore, economic policy is not assumed to have no impact on output (ii).

The Short-Run Model Is Built on Which of the Following