Consider the Following Short Run Aggregate Supply Equation: Y = $\hat Y$

question 35

Multiple Choice

Consider the following short run aggregate supply equation: Y = $\hat Y$ + b (P - Pᵉ) ,where Y is the real output, $\hat Y$ is the full employment output,P and Pᵉ are the actual and expected price levels,respectively.Which of the following is correct?

• A)In the classical model,P is always equal to Pᵉ because of price misperception assumption.
• B)In the classical model,P may be different than Pᵉ because of price misperception assumption.
• C)In the classical model,P is always greater than Pᵉ because of price misperception assumption.
• D)In the classical model,P is always less than Pᵉbecause of price misperception assumption.

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Leader and Members

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