Adjustments in ________ take the economy from the short-run equilibrium to the long-run equilibrium.
A) imports and exports
B) interest rates
C) wages and prices
D) the multiplier

Question

Quizplus · Accepted Answer

Wages and prices are the main factors that adjust in the long run to restore the economy to the natural rate of output. When output is above the natural rate, wages and prices should rise, reducing the quantity of output demanded until it is equal to the natural rate. Conversely, when output is below the natural rate, wages and prices should fall, increasing the quantity of output demanded until it is equal to the natural rate. Therefore, adjustments in wages and prices take the economy from the short-run equilibrium to the long-run equilibrium.

Adjustments in ________ Take the Economy from the Short-Run Equilibrium