Short-term macroeconomics studies supply and demand levels before market forces can react. It assumes that some resources will remain stagnant, preventing a full response to consumer demand. The increase or decrease in aggregate supply and demand are the driving forces behind short-term macroeconomics. The long run is the period in which market forces can fully mobilize resources and achieve market equilibrium.
Short-term macroeconomics is an economic term for the study of supply and demand levels over a period of time before larger market forces can react. This period of time is known as short-term, which generally includes predictable behavior influenced by supply and demand. As demand levels rise in the short run, production levels will rise over that time period and prices will rise in kind. The theory behind short-run macroeconomics states that some manufacturing inputs, especially labor and resources, will remain somewhat stagnant over this time period, preventing a full response to consumer demand levels.
Macroeconomics is the study of how economies as a whole react to characteristics of the economy such as inflation, employment and output levels. This is in contrast to microeconomics, which instead focuses on the financial decisions of individuals within a specific economy. A major goal of those who study macroeconomics is to understand how different economics stimulate the general economy over different time periods. Short-term macroeconomics focuses on aggregate supply and demand levels over a period of time before market forces can properly react.
The increase or decrease in aggregate supply and aggregate demand are the driving forces between the short-term concept of macroeconomics. Aggregate supply is the total amount of production in the economy, while aggregate demand is the amount of need consumers have for those products. These two forces will react to each other in the short run and have an effect on prices. For example, a sudden drop in supply of a specific product will cause an increase in demand for those products, pushing prices up. The opposite reaction would occur if the supply of a product suddenly increased.
What short-term macroeconomics assumes is that certain resources will not be available to producers in the short term. For example, imagine that a certain product is suddenly in high demand. Companies selling that product will ramp up production as much as possible with the resources at their disposal, but may not have enough employees or the production capacity to meet demand. Supply is still scarce, forcing prices to rise.
When the short run becomes the long run is one of the hardest things to ascertain about short-run macroeconomics. The short and long run cannot be defined in any specific time period. A loose definition of the long run is that it is the period in which market forces can fully mobilize resources and react to demand, thus achieving market equilibrium.
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