From the mainstream perspective, instability in the economy is due to
A) price ﬂexibility and shocks to either aggregate demand or aggregate supply.
B) price stickiness and shocks to either aggregate demand or aggregate supply.
C) price ﬂexibility and government policies and regulation.
D) price stickiness and government policies and regulation.

Question

Quizplus · Accepted Answer

The mainstream perspective holds that instability in the economy arises from shocks to either aggregate demand or aggregate supply. These shocks could result from factors such as changes in consumer sentiment or natural disasters affecting production. The mainstream view also holds that price stickiness, or the tendency of prices to adjust slowly in response to shocks, is a major factor contributing to instability. When prices are sticky, changes in demand or supply can result in excess supply or excess demand, leading to fluctuations in output and employment. Government policies and regulation can also have an impact on economic stability, but they are not considered the main cause of instability from the mainstream perspective.

From the Mainstream Perspective, Instability in the Economy Is Due