The expected price level is important because
A) it is the equilibrium price level in the short run
B) it determines the actual price level in the short run
C) it determines the actual price level in the long run
D) firms and resource owners make long-term agreements based on the expected price level

Question

Quizplus · Accepted Answer

Firms and resource owners make long-term agreements based on the expected price level. This means that they make decisions on investments, production, and hiring based on their expectations of future prices. If the actual price level turns out to be different from their expectations, it can lead to inefficiencies and adjustments in the economy. Therefore, the expected price level is an important factor in shaping economic outcomes in the long run.

The Expected Price Level Is Important Because