In economics, the short run refers to a period of time during which some factors of production are fixed, while others can be changed. Typically, the short run is defined as a period of time of less than one year.


In the short run, the level of output and employment in an economy is determined by the interaction of aggregate demand and aggregate supply. In other words, the level of production and employment is determined by the total amount of goods and services that people want to buy (aggregate demand) and the total amount of goods and services that businesses are willing and able to produce (aggregate supply).

If aggregate demand exceeds aggregate supply, then there is a shortage of goods and services, which causes prices to rise. This, in turn, leads to an increase in the level of production and employment as businesses respond to the higher prices by producing more. Conversely, if aggregate supply exceeds aggregate demand, then there is a surplus of goods and services, which causes prices to fall. This leads to a decrease in the level of production and employment as businesses respond to the lower prices by producing less.

In the short run, the government can influence the level of output and employment in the economy through various policy tools, such as monetary policy (adjusting interest rates and the money supply) and fiscal policy (changing government spending and taxation). These policies can help to stabilize the economy during periods of recession or inflation. However, in the long run, the level of output and employment is ultimately determined by the economy's underlying productive capacity, which is determined by factors such as technology, capital stock, and labor force.