1-The key difference between short run and long run is * 2-In the short- run equilibrium,...

1-The key difference between short run and long run is *

2-In the short- run equilibrium, if Real GDP ˂ Potential GDP, then over time price level will *

3-Okun’s law states that *

4-If the long-run aggregate supply curve is vertical, then changes in aggregate demand affect: *

5-If government reduces taxes, in the short run, *

Solutions

Expert Solution

The key difference between short-run and long-run is that in short-run there are both fixed and variable factors of production. However, in the long run, there are only variable factors of production

In the short- run equilibrium, if Real GDP ˂ Potential GDP, then over time price level will INCREASE. This is because the economy is characterized by a recessionary gap. To close the gap, the aggregate demand will increase and the price level will shoot up.

Okun’s law states that 1 additional point of unemployment raises the GDP cost by 2%

If the long-run aggregate supply curve is vertical, then changes in aggregate demand affect only the price level. The output remains unchanged at the potential level.

If government reduces taxes, in the short run, the agreement demand will increase and the AD curve will shift to the right. Such a policy is called Expansionary Fiscal Policy.

**if you liked the answer, then please upvote. Would be motivating for me. Thanks.

Rahul Sunny answered 1 year ago

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