The Sticky Price Explanation of the Short-Run Aggregate Supply Curve

question 116

Multiple Choice

The sticky price explanation of the short-run aggregate supply curve says that when the average price level rises,

• A) some firms will immediately pass the higher prices to consumers.
• B) because of adjustment costs associated with changing prices, some firms will not raise their prices immediately which may temporarily boost their sales.
• C) firms will raise their output prices by more than the increase in the average price level to make up for the shortfall in sales.
• D) consumers are unwilling to pay higher prices resulting in a decrease in aggregate demand.

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