Question

If a short-run equilibrium occurs at a level of output above the natural rate, then in the transition to the long run prices will ______, and output will ______.

Answer 1

Answer: increase; decrease

Explanation:

An economy is said to be in short run equilibrium when when the quantity of the total output that is supplied by the producers in the economy is equal to the quantity of the aggregate output that is demanded by the consumers.

If short-run equilibrium occurs at a level of output above the natural rate, then in the transition to the long run prices will increase and output will decrease.