Both models of aggregate supply discussed in Chapter 14 imply that if the price level is higher than expected, then output ______ natural rate of output.
A) exceeds the
B) falls below the
C) equals the
D) moves to a different

Question

Quizplus · Accepted Answer

Both the short-run and long-run aggregate supply models suggest that if the price level is higher than expected, firms will increase production, leading output to exceed the natural rate of output temporarily. This is because firms perceive the higher prices as an opportunity to make higher profits, prompting them to expand production.

Both Models of Aggregate Supply Discussed in Chapter 14 Imply