The primary reason that short-lived shocks can have long-run effects is
A)the nonneutrality of money.
B)misperceptions by the public over the actual price level and the expected price level.
C)the presence of rational expectations among the public.
D)the presence of propagation mechanisms.

Question

Quizplus · Accepted Answer

The presence of propagation mechanisms can cause short-lived shocks to have long-run effects. These mechanisms refer to the ways in which changes in one part of the economy can ripple through the rest of the economy over time, such as through changes in spending, investment, or production decisions. These effects can persist even after the initial shock has dissipated, leading to long-term impacts on the economy.

The Primary Reason That Short-Lived Shocks Can Have Long-Run Effects