According to the misperceptions theory,when the price level falls below the expected price level
A)the economy's SRAS curve shifts up.
B)the economy moves along its AD curve.
C)the economy moves along its LRAS curve.
D)the economy moves along its SRAS curve.

Question

Quizplus · Accepted Answer

According to the misperceptions theory, if the price level falls below the expected price level, firms may mistakenly believe that the relative price of their goods has increased, leading them to increase production. As a result, the economy will move along its short-run aggregate supply (SRAS) curve, increasing output and decreasing the price level. This is because in the short run, firms may not adjust their expectations immediately, so they will produce more at the lower price level, causing an increase in output.

According to the Misperceptions Theory,when the Price Level Falls Below