Short-run aggregate supply is greater than long-run aggregate supply in the misperceptions theory if
A)the actual price level is greater than the expected price level.
B)the actual price level equals the expected price level.
C)the actual price level is less than the expected price level.
D)output is less than its full-employment level.

Question

Quizplus · Accepted Answer

In the misperceptions theory, when the actual price level is greater than the expected price level, firms perceive the price of their product to have increased relative to other prices and thus increase production, leading to a short-run aggregate supply that is greater than the long-run aggregate supply.

Short-Run Aggregate Supply Is Greater Than Long-Run Aggregate Supply in the Misperceptions