The imperfect-information model bases the difference in the short-run and long-run aggregate supply curve on:
A) sticky wages.
B) sticky prices.
C) temporary misperceptions about prices.
D) procyclical real wages.

Question

Quizplus · Accepted Answer

The imperfect-information model suggests that in the short run, firms may have temporary misperceptions about the general price level, leading them to set the wrong price for their products. In the long run, they will adjust their prices to the level consistent with their production costs and the overall price level, resulting in a vertical long-run aggregate supply curve. This is different from the sticky wage and price models, which argue that wages or prices are slow to adjust downward in response to changes in demand or supply shocks, respectively. The procyclical real wage hypothesis is also a separate theory that suggests real wages tend to increase during economic expansions and decrease during contractions.

The Imperfect-Information Model Bases the Difference in the Short-Run and Long-Run