According to the Misperceptions Theory of the Short-Run Aggregate Supply

question 67

Multiple Choice

According to the misperceptions theory of the short-run aggregate supply curve,if the price level increases more than people expect,how do firms change their behaviour?

• A) They believe that the relative price has decreased,so they increase production.
• B) They believe that the relative price has decreased,so they decrease production.
• C) They believe that the relative price has increased,so they increase production.
• D) They believe that the relative price has increased,so they decrease production.

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Definitions:

Minimum Wage Laws

Legislation that sets the lowest hourly rate that employers can legally pay their employees.

Unemployment Levels

The proportion of the labor force that is jobless and actively seeking employment.

Price Level

An indication of the average prices of goods and services in an economy at a specific time, often used to measure inflation.

Nominal Wages

The amount of money paid to an employee before adjustments for factors like inflation, not reflecting the real purchasing power of the income.