If producers have imperfect information about the general price level and sometimes misinterpret changes in the general price level as changes in relative prices,then
A)the short-run aggregate supply curve is vertical.
B)the short-run aggregate supply curve slopes upward.
C)the aggregate demand curve is vertical.
D)the aggregate demand curve is horizontal.

Question

Quizplus · Accepted Answer

If producers have imperfect information about the general price level and sometimes misinterpret changes in the general price level as changes in relative prices, then the short-run aggregate supply curve will slope upward instead of being vertical. This is because producers will respond to the perceived change in relative prices, leading them to increase production when they think prices are higher, even if they are not. As a result, the quantity supplied will increase at each price level, giving rise to a positively sloping short-run aggregate supply curve.

If Producers Have Imperfect Information About the General Price Level