According to the misperceptions theory of aggregate supply,if a firm thought that inflation was going to be 5 percent and actual inflation was 6 percent,then the firm would believe that the relative price of what they produce had
A) increased,so they would increase production.
B) increased,so they would decrease production.
C) decreased,so they would increase production.
D) decreased,so they would decrease production.

Question

Quizplus · Accepted Answer

According to the misperceptions theory, if actual inflation is higher than expected, firms perceive their relative prices as having increased, leading them to increase production.

According to the Misperceptions Theory of Aggregate Supply,if a Firm