Consider the AD/AS macro model.An important asymmetry in the behaviour of aggregate supply is the
A)changing slope of the aggregate demand curve.
B)difference between actual and potential output.
C)different relative sizes of inflationary versus recessionary gaps.
D)economy's path of potential output as a result of labour force growth.
E)different speeds at which factor prices adjust to positive and negative output gaps.

Question

Quizplus · Accepted Answer

The asymmetry in aggregate supply refers to the fact that factor prices may adjust at different speeds in response to positive and negative output gaps. For example, in a recession, firms may be slow to reduce wages and prices, while in an inflationary period, they may be quicker to increase prices. This leads to different shapes for the short-run aggregate supply curve depending on whether the output gap is positive or negative. Therefore, option E is the best choice as it specifically addresses this asymmetry.

Consider the AD/AS Macro Model