When studying the short-run behaviour of the economy, an assumption of _____ is more plausible, whereas when studying the long-run equilibrium behaviour of an economy, an assumption of _____ is more plausible.
A)inflation; unemployment
B)unemployment; inflation
C)flexible prices; sticky prices
D)sticky prices; flexible prices

Question

Quizplus · Accepted Answer

In the short run, prices are often sticky due to contracts, menu costs, and other frictions, making the assumption of sticky prices more plausible. In the long run, prices are more flexible as these frictions are resolved, making the assumption of flexible prices more plausible.

When Studying the Short-Run Behaviour of the Economy, an Assumption