As the Macro Economy Adjusts from the Short Run to the Long

question 98

Multiple Choice

As the macro economy adjusts from the short run to the long run,

• A)wages and other factor prices adjust to close output gaps.
• B)potential output is adjusting to close inflationary or recessionary gaps.
• C)wages and other factor prices remain constant.
• D)aggregate demand shocks cause deviations from potential output.
• E)aggregate supply shocks cause deviations from potential output.

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Definitions:

Price Level

A measure of the average prices of goods and services in an economy over a period of time.

Wage Rate

The standard amount of compensation individuals receive in exchange for performing a certain task or job per unit of time.

Monetary Policy

The process by which a central bank, currency board, or equivalent regulatory committee manages the supply of money and interest rates to achieve macroeconomic objectives such as controlling inflation, consumption, growth, and liquidity.

Rational Expectations

Rational expectations is an economic theory that assumes individuals form forecasts about the future based on all available information, thereby influencing economic outcomes.