Assumptions that output is fixed and factor prices have adjusted to reach the level of full employment are:
A) useful for long-run analysis.
B) necessary for short-run analysis.
C) unrealistic to the extent that economists should not make such assumptions.
D) always true and therefore useful both in the long run and short run.

Question

Quizplus · Accepted Answer

This assumption is useful for long-run analysis as it allows economists to study the long-term effects of various policies and factors on the economy. However, it is not necessary for short-run analysis as factors may not have fully adjusted yet and output may not be fixed in the short run. It is also unrealistic to assume that this is always true in the real world.

Assumptions That Output Is Fixed and Factor Prices Have Adjusted