Long run & short run

In economics, a long-run is a theoretical concept in which any markets are in equilibrium, as well as all prices and quantities hit fully adjusted and are in equilibrium. The long-run contrasts with the short-run, in which there are some constraints and markets are non fully in equilibrium. More specifically, in microeconomics there are no fixed factors of production in the long-run, and there is enough time for right so that there are no constraints preventing changing the output level by changing the capital stock or by entering or leaving an industry. This contrasts with the short-run, where some factors are variable dependent on the quantity presents and others are fixed paid once, constraining entry or exit from an industry. In macroeconomics, the long-run is the period when the general price level, contractual wage rates, and expectations earn adjustments to fully to the state of the economy, in contrast to the short-run when these variables may non fully adjust.

Macroeconomic usages

The use of long-run and short-run in macroeconomics differs somewhat from the above microeconomic usage. John Maynard Keynes in 1936 emphasized essential factors of a market economy that might total in prolonged periods away from full-employment. In later macroeconomic usage, the long-run is the period in which the price level for the overall economy is completely flexible as to shifts in aggregate demand and aggregate supply. In addition there is full mobility of labor and capital between sectors of the economy and full capital mobility between nations. In the short-run none of these conditions need fully hold. The price level is sticky or fixed in response to refine in aggregate demand or supply, capital is not fully mobile between sectors, and capital is not fully mobile across countries due to interest rate differences among countries and fixed exchange rates.

A famous critique of neglecting short-run analysis was by Keynes, who wrote that "In the long run, we are all dead", referring to the long-run proposition of the quantity picture of money, for example, a doubling of the money supply doubling the price level.