Question

Consider the three theories of the upward slope of the short-run aggregate-supply curve. According to the sticky-wage theory, the economy recovers from a recession as nominal wages are adjusted so that real wages . True or False: According to the sticky-price theory, the economy is in a recession because not all prices adjust quickly. True False True or False: According to the misperceptions theory, the economy is in a recession when the price level is above what was expected. True False

Answer 1

Answer:

The three theories are all True.

Explanation:

Solution

(1) True

The sticky wage theory: As stated by the sticky wage theory the reimburse of employees tends to have a steady response to the changes in the performance of the economy  or the organization.

Precisely wages are frequently said to be sticky- down, this means that they can go up easily but come down only with difficulty.

Without stickiness, wages would always adjust in more or less real-time with the market and bring about constant economic equilibrium.

(2) True

Sticky price theory: The logic behind sticky price theory is the same as sticky wage theory but with in terms to the price of goods.

Menu costs produce stickiness in prices because of the cost and time considered to change the price, such as costs of printing new sales materials and distributing catalogs and the time needed for a retailer to change price tags.

Businesses will at the time being minimize the quantity supplied until they can get prices unstuck.

(3) True

Misperception theory : This theory presents changes in the total price level at the moment mislead the suppliers about what is happening in the markets in which they sell their goods. they make an inaccurate assumption that their relative prices have also declined.

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