According to the misperceptions theory,the amount by which producers increase their output when the general price level rises depends on
A)the slope of the aggregate demand curve.
B)the slope of the long-run aggregate supply curve.
C)the size of the Solow residual.
D)how much they think their relative prices have increased.

Question

Quizplus · Accepted Answer

The misperceptions theory suggests that producers may increase output in response to a rise in the general price level if they mistakenly believe that their relative prices have increased. Therefore, the amount by which they increase their output depends on their perception of how much their relative prices have increased. Choices A and B both relate to the slopes of aggregate demand and long-run aggregate supply curves, respectively, but they do not specifically address the misperceptions theory. The Solow residual (choice C) refers to a measure of technological progress and is not directly related to the misperceptions theory.

According to the Misperceptions Theory,the Amount by Which Producers Increase