A negative real shock is often amplified,creating short-run aggregate supply and aggregate demand shocks due to:
A) sticky wages and flexible prices.
B) flexible wages and sticky prices.
C) sticky wages and prices.
D) flexible wages and prices.

Question

Quizplus · Accepted Answer

Sticky wages and prices can amplify a negative real shock because they prevent the economy from adjusting quickly to the shock, leading to both short-run aggregate supply and aggregate demand shocks as firms and consumers struggle to adapt to the new economic conditions.

A Negative Real Shock Is Often Amplified,creating Short-Run Aggregate Supply