Answer to Question #302904 in Macroeconomics for shahi

Question

explain why the long-run macroeconomic equilibrium will always return to full employment according to new classical

Answer 1

As we know, In long-run equilibrium all factors of productions are variable and the current output is equal to full employment of output ,basically we can say that in long-run equilibrium that whatever can change has changed. As all prices have fully adjusted because the current output is same to the full employment output.In this long-run equilibrium also wages and prices have time to adjust they are fully flexible as per need of any time any price.In this long -run ,wages and other inputs can easily adjust its cost, so that the economy has always return full employment.