Question

Consider the three theories of the upward slope of the short-run aggregate-supply curve. a. According to the sticky-wage theory, the economy is in a recession because the price level has declined so that labor demand is too . True or False: b. According to the sticky-price theory, the economy is in a recession because people expect prices to rise quickly in a recession. True False c. According to the misperceptions theory, the economy is in a recession when the price level is what was expected.

Answer 1

Consider the following explanation

Step-by-step explanation:

a. the economy is in a recession because the price level has declined so that real wages are too high, thus labour demand is too low. False.

b. According to the new Keynesian sticky-price theory, the economy is in a recession because not all prices fall enough. Over time, firms are able to adjust their prices more fully and the economy returns to the long-run aggregate-supply curve. True.

c. According to the misperceptions theory, the economy is in a recession when the price level is below what was expected. True.