Question

How do macroeconomists typically define

the difference between the “short run” and

the “long run”? Is the classical model of a closed economy (Mankiw, chapter 3)

considered a short run model or a long run model? Why?

Answer 1

MAcro economist typically use the wages and other input prices to define the long run and short run in the economics, In the short run the wages and other inputs like the technology and capital are considered as fixed and the firms in the market cannot change those to increase or decrease the output, only the amount of labor can be varied.

In the long run, all the variables used in the production is flexible, it can be varied easily and output can adjust to the potential level.

In the classical economics, it is considered as a long run model because all the variable are flexible and they adjust quickly to the market.