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Whenever AD or AS shifts, putting an economy out of long-run equilibrium, AS has a natural tendency to shift in such a way so as
Whenever AD or AS shifts, putting an economy out of long-run equilibrium, AS has a natural tendency to shift in such a way so as to bring the economy back into long-run equilibrium. If the economy always eventually comes back to long-run equilibrium, the reason that the government even tries to implement policies to bring the economy into equilibrium is that:
- the appropriate government response can eliminate the short-run effect on prices but does little to speed up the process of reducing unemployment.
- politicians feel that it will be advantageous to take some action.
- the appropriate government response can eliminate the long-run effect on prices and can speed up the process of reducing unemployment.
- businesses expect the government to take some action.
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