Of the following theories, which is consistent with a vertical long-run aggregate supply curve?
A) the sticky-wage theory
B) misperceptions theory
C) both the sticky-wage and misperceptions theories.
D) neither the sticky-wage nor the misperceptions theory.

Question

Quizplus · Accepted Answer

The sticky-wage theory and the misperceptions theory both suggest that the long-run aggregate supply curve is vertical. The sticky-wage theory suggests that wages are slow to adjust to changes in the price level, so that an increase in the price level will lead to an increase in output in the short run but not in the long run. The misperceptions theory suggests that firms may make mistakes about the price level, so that an increase in the price level may lead to an increase in output in the short run but not in the long run.

Of the Following Theories, Which Is Consistent with a Vertical