Which of the following lists of events is consistent with the long-run and short-run economic theories studied?
A)In the long run, output is determined by the amount of capital, labour, and technology; the interest rate adjusts to balance the supply and demand for money; and the price level adjusts to balance the supply and demand for loanable funds.
B)In the long run, output is determined by the amount of capital, labour, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; and the price level adjusts to balance the supply and demand for money.
C)In the long run, output is determined by the amount of capital, labour, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; and the price level is stuck.
D)In the long run, output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply and demand for loanable funds; and the price level adjusts to balance the supply and demand for money.

Question

Quizplus · Accepted Answer

The long run theory states that output is determined by the amount of capital, labour, and technology, and the price level adjusts to balance the supply and demand for money. The short-run theory states that output can deviate from the long-run level due to temporary factors like changes in aggregate demand. The interest rate adjusts to balance the supply and demand for loanable funds in both the long run and short run. Choice A is incorrect as the interest rate adjusts to balance the supply and demand for loanable funds and not the supply and demand for money. Choice C is incorrect as the long-run theory states that the price level adjusts to balance the supply and demand for money. Choice D is incorrect as the long-run theory states that output is determined by the factors of production, not the aggregate demand.

Which of the Following Lists of Events Is Consistent with the Long-Run