Question

Why do neoclassical economists tend to put relatively more emphasis on long-term growth than on fighting recession?

A. price and wage stickiness is reasonable in the short run
B. government focuses more on recession and cyclical unemployment
C. standard of living is ultimately determined by long-term growth
D. upward trend of potential GDP determines the rate of inflation

Answer 1

Answer:

The correct answer is C. standard of living is ultimately determined by long-term growth.

Explanation:

The long-term path for economic growth is a fundamental issue of the study of the economy. The increase in the GDP of a country is usually considered as an increase in the standard of living of its inhabitants. Over long periods of time, even small annual growth rates, can have a significant effect. Thanks to its conjugation with other factors.

An annual growth rate of 2.5% would lead to GDP doubling over a period of 30 years. While an annual growth rate of 8%, it would lead to the same phenomenon in a period of only 10 years. Example: Some countries like Asian tigers. When a population increases to see improvements in living standards, GDP has to grow faster than that population. This analysis seeks to understand why there are very different rates of economic growth in some regions of the world.