Price misperception during a positive technology shock would cause:
A)output or GDP to rise by less than it would without price misperception.
B)labour supply to fall by more than it would without price misperception.
C)the expected price level to fall more than the actual price level falls.
D)all of the above.

Question

Quizplus · Accepted Answer

Price misperception during a positive technology shock would lead to a temporary increase in output and GDP due to firms mistakenly interpreting higher sales as an increase in demand, leading them to increase their output. However, this effect would be less than it would be without price misperception because firms would eventually realize their mistake and adjust prices accordingly, dampening the initial increase in output and GDP. Labour supply would not necessarily be affected by price misperception. The expected price level may fall more than the actual price level falls because firms are slow to adjust their prices, leading to a period of lower nominal wages and prices.

Price Misperception During a Positive Technology Shock Would Cause