True, false, explain. a. In the sticky price theory, the aggregate price level w

Question

True, false, explain.
a. In the sticky price theory, the aggregate price level will be equal to the expected price level if the fraction of firms with sticky prices is equal to one (i.e. s = 1). b. In the imperfect information model of the aggregate supply, firms will set their desired prices based on the current output level. c. In the imperfect information model of the aggregate supply, firms will increase production when the observed prices increase more than expected prices. d. In the sticky price theory, the desired price set by a firm with flexible prices is lower than the desired price set by a firm with sticky prices if the current output level is higher than the natural level. True, false, explain.
a. In the sticky price theory, the aggregate price level will be equal to the expected price level if the fraction of firms with sticky prices is equal to one (i.e. s = 1). b. In the imperfect information model of the aggregate supply, firms will set their desired prices based on the current output level. c. In the imperfect information model of the aggregate supply, firms will increase production when the observed prices increase more than expected prices. d. In the sticky price theory, the desired price set by a firm with flexible prices is lower than the desired price set by a firm with sticky prices if the current output level is higher than the natural level. True, false, explain.
a. In the sticky price theory, the aggregate price level will be equal to the expected price level if the fraction of firms with sticky prices is equal to one (i.e. s = 1). b. In the imperfect information model of the aggregate supply, firms will set their desired prices based on the current output level. c. In the imperfect information model of the aggregate supply, firms will increase production when the observed prices increase more than expected prices. d. In the sticky price theory, the desired price set by a firm with flexible prices is lower than the desired price set by a firm with sticky prices if the current output level is higher than the natural level.

Explanation / Answer

a) True. the higher the proportion of firms with sticky prices higher will be chances of aggregate price level equal to expected price level.

b) True. The decsions are based on the temporary changes perceived in the prices.

c) True. The decisions are based on the temporary changes perceived in the prices.

d) False. AT such a level the production is already at a level higher than full employment . Rationing occurs and prices rise.

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