After a drop in nominal aggregate demand,if menu costs prevent firms from reducing prices,this is considered ________ act by firms ________ a "macroeconomic externality."
A)a rational,because it produces
B)a rational,that happens to produce
C)an irrational,because it produces
D)an irrational,that happens to produce

Question

Quizplus · Accepted Answer

Menu costs make it rational for firms not to change prices frequently, but this can unintentionally lead to macroeconomic externalities like prolonged recessions.

After a Drop in Nominal Aggregate Demand,if Menu Costs Prevent