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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.
Prior to the financial crises of 2007-9, the majority new consensus view, still found in most current text-books and taught in all universities, was New Keynesian economics, which (in contrast to Keynes) accepts the neoclassical concept of long-run equilibrium but allows a role for aggregate demand in the short run. New Keynesian economists ...
These factors move slowly, so that it is a reasonable approximation to take them as given in a medium-term time scale, though labour market policies and competition policy are instruments that may influence the economy's structures and hence also the medium-run equilibrium; the long run (e.g. a couple of decades or more): On this time scale ...
Through this identification, Keynes deduced the consequences for the macroeconomy of long-run equilibrium being attained not at only one unique position that represented a "Pareto Optima" (a special case), but through a possible range of many equilibria that could significantly under-employ human and natural resources (the general case).
The iron law of wages is a proposed law of economics that asserts that real wages always tend, in the long run, toward the minimum wage necessary to sustain the life of the worker. The theory was first named by Ferdinand Lassalle in the mid-nineteenth century.
This is where the term NAIRU is derived. In macroeconomics, the case where the actual unemployment rate equals the NAIRU is seen as the long-run equilibrium because there are no forces inside the normal workings of the economy that cause the inflation rate to rise or fall. The NAIRU corresponds to the long-run Phillips curve. While the short ...
In equilibrium. y d = ŷ (demand for output equals the long run demand for output) from this substitution shows that [8] ŷ/h = ŝ - p_hat That is, in the long run, the only variable that affects the real exchange rate is growth in capacity output. Also, Δs e = 0 (that is, in the long run the expected change of inflection is equal to zero)
However, many see the concept of flexible prices as useful in the long-run analysis since prices are not stuck forever: market-clearing models describe the equilibrium economy gravitates towards. Therefore, many macro-economists feel that price flexibility is a reasonable assumption for studying long-run issues, such as growth in real GDP ...