Question

8) According to the misperceptions theory, after an unanticipated increase in the money supply has occurred, the SRAS curve must shift ________ to restore general equilibrium; as it does so, the price level ________. A) downward; rises B) downward; falls C) upward; rises D) upward; falls

Answer 1

Answer:

C. upward, rises

Explanation:

According to misperception theory of economics when a supplier observes that price of its goods is declining, there is misperception to supplier that relative price will also decrease. This leads him to supply less goods in the market.

Hence, SRAS curve rises so that for same supply there is  increase in price and hence equilibrium is restored.