Which of the following statements is true of the economy in the long run? In the long run,
I. real GDP eventually moves to potential output because all wages and prices are assumed to be flexible.
II. the economy can achieve its natural level of employment and potential output at any price level.
III. there is no cyclical unemployment.
A) I only
B) I and II only
C) I and III only
D) I, II, and III

Question

Which of the following statements is true of the economy in the long run? In the long run, 
I. real GDP eventually moves to potential output because all wages and prices are assumed to be flexible.
II. the economy can achieve its natural level of employment and potential output at any price level.
III. there is no cyclical unemployment.
A) I only
B) I and II only
C) I and III only
D) I, II, and III

Quizplus · Accepted Answer

In the long run, wages and prices are flexible, allowing real GDP to adjust to potential output (I). The economy can achieve its natural level of employment and potential output at any price level due to this flexibility (II). Cyclical unemployment is eliminated in the long run as the economy reaches full employment (III).

Which of the Following Statements Is True of the Economy