If input prices adjusted just as quickly as output prices,the profit effect leading to an increase in real GDP supplied would disappear.

Question

Quizplus · Accepted Answer

If input prices adjusted just as quickly as output prices, firms would not experience any profit effect from a change in output prices. As a result, they would have no incentive to increase production, and any initial increase in real GDP supplied would not persist over time. Therefore, the profit effect is a key factor in driving the relationship between output prices and real GDP supplied in the short run.

If Input Prices Adjusted Just as Quickly as Output Prices,the