The "asymmetry" in the behaviour of aggregate supply refers to the
A)different speeds at which the economy adjusts to positive and negative output gaps.
B)different relative sizes of inflationary versus recessionary gaps.
C)economy's path toward potential output.
D)difference between actual and potential output.
E)changing slope of the aggregate demand curve.

Question

Quizplus · Accepted Answer

The asymmetry in the behaviour of aggregate supply refers to the fact that the economy adjusts to positive output gaps (when actual output is above potential output) more slowly than it adjusts to negative output gaps (when actual output is below potential output). This is because prices and wages are sticky and adjust more slowly in response to positive shocks such as increased demand. In comparison, in response to negative shocks such as a recession, prices and wages can adjust more readily downward.

The "Asymmetry" in the Behaviour of Aggregate Supply Refers to the