In macroeconomic models, prices are assumed to be completely inflexible in:
A) The very short run only
B) The short run and remains so over time
C) The very long run
D) Situations when the changes in demand look to be permanent

Question

Quizplus · Accepted Answer

Prices are assumed to be completely inflexible in the very short run only. In the short run, prices may adjust to temporary changes in demand and supply, but in the very short run, prices are assumed to be fixed due to factors such as menu costs, contract agreements or psychological pricing strategies. In the longer run, prices may adjust to changes in market conditions, but in the very long run, other factors such as technological progress, demographic changes, and institutional features may affect the economy.

In Macroeconomic Models, Prices Are Assumed to Be Completely Inflexible