The mathematical equation: quantity of output supplied = natural rate of output + a(actual price level - expected price level),expresses
A)how the long run equilibrium adjusts to changes in money supply.
B)how output deviates in the short run from its long run natural rate.
C)how the short run aggregate supply curve shifts.
D)how adverse shifts in aggregate supply can cause stagflation.

Question

Quizplus · Accepted Answer

The equation given is the equation of the short-run aggregate supply curve. It shows that the quantity of output supplied in the short run deviates from the long-run natural rate due to a difference between the actual price level and expected price level.

The Mathematical Equation: Quantity of Output Supplied = Natural Rate