If prices were to adjust quickly:
A)output gaps would be persistent.
B)output gaps would disappear quickly.
C)inflation would adjust slowly.
D)the short-run aggregate supply curve would not shift.

Question

Quizplus · Accepted Answer

If prices were to adjust quickly, output gaps would disappear quickly as well because prices and wages would be able to adjust to changes in demand and supply more efficiently. This is due to the fact that firms and suppliers would respond quickly to price changes, which would lead to a faster equilibrium in the market. However, inflation rates may also adjust quickly in response to changes in prices, which may cause short-run fluctuations in the economy. Nonetheless, the short-run aggregate supply curve would still shift due to changes in prices and wages.

If Prices Were to Adjust Quickly