Each of the Two Models of Short-Run Aggregate Supply Is

question 42

Multiple Choice

Each of the two models of short-run aggregate supply is based on some market imperfection. In the sticky-price model, the imperfection is that:

• A)some firms do not adjust their prices instantly to changes in demand.
• B)expectations are formed adaptively rather than rationally.
• C)firms confuse changes in the overall level of prices with changes in relative prices.
• D)the real wage adjusts to bring labour supply and labour demand into equilibrium.

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