How Does the Distinction Between Flexible and Sticky Prices Impact

question 8

Multiple Choice

How does the distinction between flexible and sticky prices impact the study of macroeconomics?

• A) The study of flexible prices is confined to microeconomics, while macroeconomics focuses on sticky prices.
• B) Macroeconomists use flexible prices to explain inflation and sticky prices to explain unemployment.
• C) Flexible prices are typically assumed in the study of the long run, while sticky prices are assumed in the study of the short run.
• D) Endogenous variables are measured using flexible prices, while exogenous variables are measured using sticky prices.

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Definitions:

Price Increase

A general rise in the prices of goods and services over a period of time, decreasing purchasing power.

Income Effect

The change in an individual's or economy's income and how that change will affect the quantity demanded of a good or service.

Apartment Rents

The payment made periodically by a tenant to a landlord for the use and occupancy of an apartment.

Chewing Gum

Chewing gum is a type of flavored and chewable confectionery designed to be chewed without being swallowed.