The sticky-price theory of the short-run aggregate supply curve says that if the price level rises by 5% while firms were expecting it to rise by 2%, then some firms with high menu costs will have
A)higher than desired prices, which leads to an increase in the aggregate quantity of goods and services supplied.
B)higher than desired prices, which leads to a decrease in the aggregate quantity of goods and services supplied.
C)lower than desired prices, which leads to an increase in the aggregate quantity of goods and services supplied.
D)lower than desired prices, which leads to a decrease in the aggregate quantity of goods and services supplied.

Question

Quizplus · Accepted Answer

Firms with high menu costs may not adjust their prices immediately, resulting in lower than desired prices when the actual price level is higher than expected, leading to an increase in the quantity of goods and services supplied.

The Sticky-Price Theory of the Short-Run Aggregate Supply Curve Says