In the SP/LP model it is possible to have all short-run equilibrium points run along the LP line if we employ the assumption of ________ expectations.
A)backward-looking
B)forward-looking
C)adaptive
D)extrapolative

Question

Quizplus · Accepted Answer

Forward-looking expectations in the SP/LP model allow for the possibility that all short-run equilibrium points align with the long-run equilibrium path, as agents anticipate future economic conditions and adjust their behavior accordingly, ensuring that the economy can adjust smoothly without deviating from the long-run path.

In the SP/LP Model It Is Possible to Have All