Suppose That Prices Are Sticky in the Short-Run

question 25

Multiple Choice

Suppose that prices are sticky in the short-run. Which of the following best describes the economy's response to a positive demand shock?

• A) Firms' inventories will increase, causing them to cut production. Ultimately, real GDP will decrease and unemployment will increase.
• B) Firms' inventories will decrease, causing them to increase production. Ultimately, real GDP will increase and unemployment will decrease.
• C) Firms' inventories will increase, causing them to cut production. Ultimately, real GDP will increase and unemployment will increase.
• D) Firms' inventories will increase, causing them to cut production. Ultimately, real GDP will decrease and unemployment will decrease.

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Definitions:

Peripheral Route

A persuasive strategy that relies on superficial cues rather than substantive arguments to influence someone's attitude or behavior.

Central Route

A method of persuasion that involves high levels of cognitive processing, where the audience considers logical arguments and substantial evidence.

Elaboration Likelihood Model

A theory explaining different ways of processing stimuli, why they are used, and their outcomes on attitude change.

Attractive Celebrities

Famous individuals who are widely recognized and considered appealing or desirable in appearance.