If firms and workers could predict the future price level exactly, the short-run aggregate supply curve?

future firm
savage asked:

9. If firms and workers could predict the future price level exactly, the short-run aggregate supply curve would be:

A. Downward sloping.

B. Upward sloping.

C. Horizontal.

D. The same as the long-run aggregate supply curve.

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One Response to 'If firms and workers could predict the future price level exactly, the short-run aggregate supply curve?'

  1. Oblivion - July 25th, 2009 at 3:56 am

    SRAS curve usually sloped up due to:
    1.The Sticky-Wage Theory
    2.The Sticky-Price Theory
    3.The Misperceptions Theory

    Formally, if firms and workers would be able to predict future prices, imperfections will disappear, so SRAS=LRAS=vertical, and the answer will be (D).

    There is a small caveat, though: Menu costs might still cause SRAS curve to be upward-sloping. Not sure what the Prof. really want here..


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