Concept explainers
Short-run model and long-run model.
Explanation of Solution
The short run refers to a time period, which does not allow a change in capital to adjust to the market situation. The short-run model explains the changes in output due to changes in the variables such as labor and raw materials and the present inflation rate.
The long run refers to a time period, which changes the production variable to adjust to the market situation. The long-run model represents the growth rate of output and the production level. The model also explains the long-run inflation rate. The long-run output level should be known for understanding the short-run fluctuations and the size of production.
Short run: The short run refers to a time period, which does not allow a change in capital to adjust to the market situation.
Long run: The long run refers to a time period, which changes the production variable to adjust to the market situation.
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