According to the misperceptions theory of the short-run aggregate supply curve,if a firm thought that inflation was going to be 4 percent and actual inflation was 2 percent,then the firm would believe that the relative price of what they produce had
A)increased, so they would increase production.
B)increased, so they would decrease production.
C)decreased, so they would increase production.
D)decreased, so they would decrease production.

Question

Quizplus · Accepted Answer

According to the misperceptions theory, if actual inflation is lower than expected, firms perceive that the relative price of their goods has decreased, leading them to reduce production.

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