The flexible-price model does not give a complete picture of the macroeconomy for each of the following reasons except
A) real GDP growth is not always smooth.
B) real GDP growth is sometimes negative.
C) the unemployment rate is not always equal to the natural rate.
D) inflation is sometimes negative.

Question

Quizplus · Accepted Answer

The flexible-price model, which assumes prices adjust quickly to equate supply and demand, does not account for the complexities of real GDP fluctuations, negative growth, or deviations of unemployment from its natural rate. However, the occurrence of negative inflation (deflation) does not contradict the flexible-price model, as prices can adjust downward as well as upward.

The Flexible-Price Model Does Not Give a Complete Picture of the Macroeconomy