Consider the AD/AS macro model.An important asymmetry in the behaviour of the AS curve is that
A)prices are sticky but wages are not.
B)positive output gaps can persist for a long time without causing increases in wages and prices,whereas negative output gaps lead to immediate reductions in wages and prices.
C)negative output gaps can persist for a while without causing large decreases in wages and prices,whereas positive output gaps lead more quickly to increases in wages and prices.
D)wages are very flexible in the downward direction,but not in the upward direction.
E)wages and prices are equally sticky in both directions.

Question

Quizplus · Accepted Answer

The AS curve's behaviour is asymmetric because it responds differently to positive and negative output gaps. Negative output gaps may persist for a while without leading to significant decreases in wages and prices, whereas positive output gaps lead more quickly to increases in wages and prices. This means that the economy may experience longer periods of low inflation without causing significant changes in wages and prices, while the opposite is true for periods of high inflation.

Consider the AD/AS Macro Model