Using the Sticky-Price Model, the Higher the Average Rate of Inflation

question 19

Multiple Choice

Using the sticky-price model, the higher the average rate of inflation, the more frequently firms must adjust their prices, which implies that a high rate of inflation:

• A) has no effect on the slope of the short-run aggregate supply curve.
• B) should make the short-run aggregate supply curve flatter.
• C) makes the short-run aggregate supply curve steeper.
• D) causes prices to be sticky.

---

Definitions:

Unit Price

The cost per unit of a product or service, making it easier to compare the value of similar items.

Market Price

The current market price for buying or selling an asset or service in an open exchange.

Purely Competitive

A market structure characterized by many buyers and sellers, homogeneous products, and free entry and exit of firms.

Short Run

A period in which at least one factor of production is fixed, affecting the ability of a business to increase output in response to increased demand.