According to the new classical misperceptions theory, the upward slope of the short-run aggregate-supply curve results from:
A)misperceptions about the quantity of goods and services demanded
B)misperceptions about the ability of production
C)misperceptions about relative prices
D)none of the above

Question

Quizplus · Accepted Answer

The new classical misperceptions theory suggests that the upward slope of the short-run aggregate-supply curve is a result of misperceptions about relative prices. Specifically, firms may mistakenly believe that an increase in the price level reflects a higher demand for their particular goods or services, causing them to increase their supply in the short-run. However, this misconception is corrected in the long-run, and the supply curve becomes vertical.

According to the New Classical Misperceptions Theory, the Upward Slope