Question

Assuming that a is positive, theories of short-run aggregate supply are expressed mathematically as a. quantity of output supplied = natural rate of output + a(actual price level - expected price level). b. quantity of output supplied = natural rate of output + a(expected price level - actual price level). c. quantity of output supplied = a(actual price level -expected price level) - natural rate of output. d. quantity of output supplied = a(expected price level - actual price level) - natural rate of output

Answer 1

Answer: Option (a) is correct.

Explanation:

Given that,

"a" is positive

The theories of short-run aggregate supply is expressed as:

Quantity of output supplied = Natural Rate of output + a x (Price level (actual) - Price level (expected))

The short-run quantity of output supplied by the firm will rise above the natural output level if the actual price level is greater than the price that is expected by the individuals.