Question

Consider the short run and the long run time frames used in macroeconomics. The definition of the short run is Select one: a. The time period when supply of money is fixed b. The time period when the labor force participation rate is fixed c. The time period before the economy has fully adjusted to an unexpected change in aggregate demand d. The time period when inflation is positive

Answer 1

The time period before the economy has fully adjusted to an unexpected change in aggregate demand

Step-by-step explanation:

The time period before the economy has fully adjusted to an unexpected change in aggregate demand.

In the long run, all inputs become variable and thus capital and investment can be added to the production functions to adjust for increased demand. However, in the short run only labor is a variable factor and thus for an increase in aggregate demand there is a time lag and other factors cannot adjust to account for increased demand. In the long run, these factors adjust and form a long run equilibrium when the lag is settled.

Hope that helps.