Because prices change too slowly in the short-run and as a result, they do not quickly equalize the quantity demanded and quantity supplied of goods and services, the short-run response of the economy to a demand shock is through:
A)changes in output and employment levels rather than through changes in prices.
B)changes in prices rather than through changes in employment.
C)changes in employment but not in output.
D)changes in output but not in the employment.

Question

Quizplus · Accepted Answer

In the short-run, prices are inflexible, and so they do not adjust quickly to changes in demand. Therefore, changes in output and employment levels are the primary way the economy responds to demand shocks in the short-run. This is known as the sticky-price theory of the short-run.

Because Prices Change Too Slowly in the Short-Run and as a Result