A key assumption of the short-run model is:
A) zero inflation.
B) perfect price flexibility.
C) that unemployment always equals its natural rate.
D) that the economy never deviates from its long-run equilibrium.
E) sticky inflation.

Question

Quizplus · Accepted Answer

The assumption of sticky inflation is central to the short-run model, as it suggests that prices do not adjust immediately to changes in supply and demand. This leads to short-run fluctuations in output and employment, as firms may respond to changes in demand by adjusting production and employment levels rather than adjusting prices.

A Key Assumption of the Short-Run Model Is