When we use the sticky-price model of aggregate supply, we assume that when prices are high, we expect them to fall in the near future O prices respond more to changes in output when there is a higher proportion of sticky-price firms O only sticky price firms will raise their prices when short-run output is high as short run output rises, prices rise in flexible-price firms
When we use the sticky-price model of aggregate supply, we assume that when prices are high, we expect them to fall in the near future O prices respond more to changes in output when there is a higher proportion of sticky-price firms O only sticky price firms will raise their prices when short-run output is high as short run output rises, prices rise in flexible-price firms
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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