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Marshall's original introduction of long-run and short-run economics reflected the 'long-period method' that was a common analysis used by classical political economists. However, early in the 1930s, dissatisfaction with a variety of the conclusions of Marshall's original theory led to methods of analysis and introduction of equilibrium notions.
The total cost curve, if non-linear, can represent increasing and diminishing marginal returns.. The short-run total cost (SRTC) and long-run total cost (LRTC) curves are increasing in the quantity of output produced because producing more output requires more labor usage in both the short and long runs, and because in the long run producing more output involves using more of the physical ...
An increase in the interest rate, from a leftward shift of the MP curve or higher level of inflation, produces lower total output, Q. The IS curve displays a negative relationship between the real interest rate, located on the vertical axis, and total output, on the horizontal axis.
The IS–LM model shows the relationship between interest rates and output in the short run in a closed economy. The intersection of the "investment–saving" (IS) and "liquidity preference–money supply" (LM) curves illustrates a "general equilibrium" where supposed simultaneous equilibria occur in both the goods and the money markets.
Using log real GNP, the distance between any point and the 0 line roughly equals the percentage deviation from the long-run growth trend. Also, note that the Y-axis uses very small values. This indicates that the deviations in real GNP are comparatively small and might be attributable to measurement errors rather than real deviations.
[5] [6] Supply is normally more elastic in the long run than in the short run for produced goods, since it is generally assumed that in the long run all factors of production can be utilised to increase supply, whereas in the short run only labor can be increased, and even then, changes may be prohibitively costly. [1]
The principal difference between short run and long run profit maximization is that in the long run the quantities of all inputs, including physical capital, are choice variables, while in the short run the amount of capital is predetermined by past investment decisions. In either case, there are inputs of labor and raw materials.
Short-run and long-run analyses; Sticky versus flexible wages and prices; Determinants of aggregate supply; Macroeconomic Equilibrium. Real output and price level; Short and long run; Actual versus full-employment output; Economic fluctuations; Fiscal Policy Expansionary and contractionary; Lag time; Automatic stabilizers