The more that firms in an economy believe that the demand for their goods is mainly influenced by "local conditions" and not the aggregate level of demand,the ________ is the SAS curve and thus the ________ are cycles in real GDP.

Question

Quizplus · Accepted Answer

If firms believe that the demand for their goods is mainly influenced by local conditions, then the SAS curve will be flatter, indicating that changes in aggregate demand have a smaller effect on output. This means that cycles in real GDP will be larger due to the smaller sensitivity of output to changes in aggregate demand.

The More That Firms in an Economy Believe That the Demand