I'm being introduced to macroeconomics, and a colleague asked why do we say that in the short term the productivity of a country is determined by the "demand side" (IS/LM model) while in the long run it depends mostly on the "supply side" (Solow's model). I wondered about it, and I got to a conclusion, but I can't tell if it's correct or not. Would you tell me if I'm right?
Productivity of a country depends most of all on its capital, work force and technology. Nevertheless, the variation of such factors needs time to take effect, for the spreading of new technologies of production usually takes several years, as do the improvement of workers' qualification and the growth of population. Therefore, the evolution of productivity in the short term must be explained by other factors, much more reactive, such as monetary and fiscal policies.
Is this OK?