The SRAS would be vertical if:
A) there was no profit effect.
B) there was no misperception effect.
C) there was no profit effect or misperception effect.
D) under no conceivable set of circumstances.

Question

Quizplus · Accepted Answer

The SRAS would be vertical if there was no profit effect or misperception effect. This is because the profit effect causes SRAS to slope upward, as firms increase output in response to higher prices, and the misperception effect causes SRAS to slope downward, as firms initially mistake a price increase for a higher demand. Without these effects, SRAS would be vertical at the natural rate of output. Option (D) is incorrect because there are conceivable circumstances where SRAS can be vertical as explained above. Option (A) and (B) are incorrect because both profit and misperception effects affect the slope of the SRAS.

The SRAS Would Be Vertical If