Why is the expected price level significant?
A) because it is the equilibrium price level in the short run
B) because it determines the actual price level in the short run
C) because it determines the actual price level in the long run
D) because firms and resource owners make long-term agreements based on the expected price level

Question

Why is the expected price level significant?  
A) because it is the equilibrium price level in the short run 
B) because it determines the actual price level in the short run 
C) because it determines the actual price level in the long run 
D) because firms and resource owners make long-term agreements based on the expected price level

Quizplus · Accepted Answer

The expected price level is significant because firms and resource owners often base their long-term contracts, wage agreements, and investment decisions on their expectations of future price levels. This anticipation affects economic planning and decision-making, influencing the overall economic activity.

Why Is the Expected Price Level Significant