A Difference Between the Economic Long Run and the Short

question 116

Multiple Choice

A difference between the economic long run and the short run is that:

• A) the classical dichotomy holds in the short run but not in the long run.
• B) monetary and fiscal policy affect output only in the long run.
• C) demand can affect output and employment in the short run, whereas supply is the ruling force in the long run.
• D) prices and wages are sticky in the long run only.

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Definitions:

Sticky-Price Theory

A theory proposing that prices of goods do not immediately adjust to changes in economic conditions, causing economic inefficiencies.

Aggregate Demand

The grand total of all demands for goods and services within an economic sphere, established at a certain collective price level during a fixed timeframe.

Aggregate Supply

The total supply of goods and services that firms in an economy plan on selling during a specific time period, at a given price level.

Capital Stock

The total amount of physical goods and financial assets that are used in the production of goods and services in an economy.