Final answer:
In the long run, the economy tends to return to its potential GDP and reach a new equilibrium after a shock like the coronavirus pandemic affected markets. Adjustments occur through changes in aggregate demand and supply. Over time, wages and prices become more flexible, leading to a recovery of the economy.
Step-by-step explanation:
In response to a shock such as the coronavirus pandemic, markets undergo adjustments to reach equilibrium. In the short run, there may be disruptions to aggregate demand and supply, leading to a temporary deviation from the long-run equilibrium. However, in the long run, the economy tends to return to its potential GDP and reach a new equilibrium.
During a shock, such as the current pandemic, there may be a decrease in aggregate demand due to reduced consumer spending and firms' hesitation to invest. This leads to a leftward shift in the aggregate demand curve. In the short run, this can result in a deviation from equilibrium, with lower output and higher unemployment.
However, over time, wages and prices become more flexible, and adjustments occur. For example, wages may stagnate or even decrease, allowing firms to lower costs and increase production. As a result, the short-run aggregate supply curve shifts to the right, gradually leading the economy back to the long-run equilibrium.