Consider the AD/AS Macro Model

question 19

Multiple Choice

Consider the AD/AS macro model.An important asymmetry in the behaviour of the AS curve is that

• A)prices are sticky but wages are not.
• B)positive output gaps can persist for a long time without causing increases in wages and prices,whereas negative output gaps lead to immediate reductions in wages and prices.
• C)negative output gaps can persist for a while without causing large decreases in wages and prices,whereas positive output gaps lead more quickly to increases in wages and prices.
• D)wages are very flexible in the downward direction,but not in the upward direction.
• E)wages and prices are equally sticky in both directions.

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Definitions:

Lower Labor Productivity

A condition where there is a decrease in the amount of goods or services produced per unit of labor.

Technology Production

The process of designing, manufacturing, and introducing new technological goods or services.

Equilibrium Price

The cost at which the volume of goods available equals the volume desired by buyers in the market.

Equilibrium Quantity

The quantity of a good or service demanded and supplied at the equilibrium price, where market supply and demand balance each other.