Which of the following equations is most likely to represent short-run aggregate supply according to the misperceptions theory?
A)Y = 6000
B)Y = 6000 + 50(P - Pᵉ)
C)P = 2
D)PY = 12,000

Question

Quizplus · Accepted Answer

According to the misperceptions theory, firms may temporarily misperceive changes in the price level as changes in relative prices, leading them to adjust their output in response to changes in anticipated rather than actual prices. This implies that short-run aggregate supply (SRAS) is upward sloping, with an equation that includes a term for expected price level (Pᵉ). Choice B includes such a term and is therefore the most likely equation to represent short-run aggregate supply according to the misperceptions theory.

Which of the Following Equations Is Most Likely to Represent