ECON 1BB3 Lecture 26: L26 - Long Run equilibrium.docx

• School: McMaster University
• Department: Economics
• Course: ECON 1BB3
• Professor: Gang Wu

Document Summary

How does the economy return to long run equilibrium after suffering a shock: returning to lr equilibrium, if the economy is not in long run equilibrium, there is an automatic adjustment mechanism that begins to take effect in the labour market, economy will eventually return to lr equilibrium, even without any government intervention, through a shift in sras, i. e. 1 start in a recession, i. e. 2 start in a boom, mechanism kicks in when y , high unemployment put downward pressure on wages production.