Homework (Ch 20) 6. Why the aggregate supply curve slopes upward in the short ru

Question

Homework (Ch 20) 6. Why the aggregate supply curve slopes upward in the short run In the short run, the quantity of output that firms supply from the expected price level. Several theories explain how this might happen. can deviate from the natural level of output if the actual price level in the economy deviates example, the misperceptions theory asserts that changes in the price level can temporarily mislead firms about what is happening to their output prices. Consider a soybean farmer who expects a price level of 100 in the coming year. If the actual price level turns out to be 90, soybean prices will services, she will respond by for changes in their relative prices, the unexpected decrease in the pricelevel causes the quantity of output supplied tothe natural level of output in the short run. and if the farmer mistakenly assumes that the price of soybeans dedlined relative to other prices of goods and the quantity of soybeans supplied. If other producers in this economy mistake changes in the price level

Explanation / Answer

Misperceptions theory suggests that changes in overall price level can temporarily mislead suppliers. When price level falls below the level that was expected , suppliers think that the relative prices of their products have declined, so they produce less. Thus, lower price level reduces quantity of goods and services supplied.

(a) Fall

(b) Reducing

(c) Fall below

(d) When the actual price level rises above the price level that people expected

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