According to the misperceptions theory,when the price level falls below the expected price level,
A)the economy's SRAS curve shifts to the left.
B)the economy moves along its AD curve.
C)the economy moves along its LRAS curve.
D)the economy moves along its SRAS curve.

Question

Quizplus · Accepted Answer

According to the misperceptions theory, when the price level falls below the expected price level, firms may initially think their relative prices have fallen and reduce output in the short run. This leads to a contraction along the economy's SRAS curve. Therefore, the best choice is D, which states that the economy moves along its SRAS curve.

According to the Misperceptions Theory,when the Price Level Falls Below