According to the sticky-price model, deviations of output from the natural level are deviations of the price level from the expected price level.
A)positively associated with
B)negatively associated with not
C)related to
D)equal to

Question

Quizplus · Accepted Answer

The sticky-price model assumes that prices are "sticky," meaning they do not adjust immediately to changes in supply and demand. Therefore, when there is a deviation of output from the natural level (i.e. unemployment or inflation), it is assumed to be caused by a deviation in the price level from the expected price level. Specifically, a negative output gap (where GDP is below potential) is associated with a lower than expected price level, while a positive output gap (where GDP exceeds potential) is associated with a higher than expected price level. Therefore, deviations of output and the price level are positively associated in the sticky-price model.

According to the Sticky-Price Model, Deviations of Output from the Natural