ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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changes in supply will be reflected primarily in changes in prices, not output.
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changes in demand will be reflected primarily in changes in output, not prices.
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changes in supply and demand will be reflected in changes in prices, not output.
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changes in factors other than supply and demand will be reflected in changes in output, not prices.
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Detailed explanation-1: -Many economists believe that prices are “sticky”-they adjust slowly. This stickiness, they suggest, means that changes in the money supply have an impact on the real economy, inducing changes in investment, employment, output and consumption, an effect that can be exploited by policymakers.
Detailed explanation-2: -What is a potential explanation for the stickiness of prices and wages in the short run? uncertainty about the permanence of a change in market conditions. If firms are unsure, they will hold off on changing prices, at least for a while. menu costs. Menu costs are the costs of changing prices.
Detailed explanation-3: -Price stickiness-the tendency of prices to remain constant despite changes in supply and demand-has been linked to firms’ unwillingness to pay the costs entailed in setting, implementing, and advertising new prices.
Detailed explanation-4: -Sticky wages and prices are wages and prices that do not fall in response to a decrease in demand or do not rise in response to an increase in demand.