Any implication of the imperfect-information model is that any stimulus in aggregate demand is channeled more strongly into price acceleration
A) the more firms expect that stimulus to be channeled in prices.
B) the more firms expect that stimulus to be felt in output.
C) the smaller the uncertainty surrounding the price acceleration.
D) the smaller the uncertainty surrounding what output stimulus might be felt.
E) none of the above.

Question

Quizplus · Accepted Answer

The imperfect-information model suggests that when firms expect a stimulus to be reflected more in prices rather than output, they are more likely to adjust their prices upwards in anticipation of inflation or increased costs, leading to a stronger channeling of the stimulus into price acceleration. This is because firms, expecting higher prices in the economy, may raise their own prices to maintain margins, contributing to inflation.

Any Implication of the Imperfect-Information Model Is That Any Stimulus