Consider the following short run aggregate supply equation:
, where Y is the real output is
the full employment output, P and Pe are the actual and expected price levels, respectively. Which of the following is correct?
A) In the classical model, P is always greater than Pe because of price misperception assumption.
B) In the classical model, P is always equal to Pe because of price misperception assumption.
C) In the classical model, P is always less than Pebecause of price misperception assumption.
D) In the classical model, P may be different than Pe because of price misperception assumption.
Correct Answer:
Verified
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