How does the distinction between flexible and sticky prices impact the study of macroeconomics?
A) The study of flexible prices is confined to microeconomics, while macroeconomics focuses on sticky prices.
B) Macroeconomists use flexible prices to explain inflation and sticky prices to explain unemployment.
C) Flexible prices are typically assumed in the study of the long run, while sticky prices are assumed in the study of the short run.
D) Endogenous variables are measured using flexible prices, while exogenous variables are measured using sticky prices.

Question

Quizplus · Accepted Answer

The distinction between flexible and sticky prices impacts the study of macroeconomics by influencing the assumptions that are made in the analysis of the short run and long run. Flexible prices are assumed in the study of the long run because they allow for market forces to adjust and reach equilibrium. On the other hand, sticky prices are assumed in the study of the short run because they prevent markets from adjusting immediately and lead to temporary imbalances such as unemployment and inflation. Thus, choice C is the best answer because it accurately reflects this relationship between flexible and sticky prices and their role in macroeconomic analysis.

How Does the Distinction Between Flexible and Sticky Prices Impact