Consider the three theories of the upward slope of the short-run aggregate-supply curve.According to the sticky-wage theory, the economy recovers from a recession as nominal wages are adjusted so that real wages    . True or False: According to the sticky-price theory, the economy is in a recession because people expect prices to rise quickly in a recession.True False  True or False: According to the misperceptions theory, the economy is in a recession when the price level is above what was expected.True False

Question
Asked Dec 10, 2019
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Consider the three theories of the upward slope of the short-run aggregate-supply curve.
According to the sticky-wage theory, the economy recovers from a recession as nominal wages are adjusted so that real wages    .
 
True or False: According to the sticky-price theory, the economy is in a recession because people expect prices to rise quickly in a recession.
True
 
False
 
 
True or False: According to the misperceptions theory, the economy is in a recession when the price level is above what was expected.
True
 
False
 
 
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Expert Answer

Step 1

As per the sticky wage theory, when the economy is in recession, it would result in the unexpected decline in the price, due to the rise in the real wages, it would cause labor demand to below. The economy in the aggregate supply would get quickly affected by the level of demand. With time, when nominal wages would get adjusted, it would cause the real wages to decline and the economy would return to the full employment level.

Step 2

a)

So according to the sticky-price theory, the economy is in a recession because not all prices adjust quickly. So people cannot think likewise. When in recessions, the price...

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