According to the misperceptions theory of the short-run aggregate supply curve,if the price level increases more than people expect,how do firms change their behaviour?
A) They believe that the relative price has decreased,so they increase production.
B) They believe that the relative price has decreased,so they decrease production.
C) They believe that the relative price has increased,so they increase production.
D) They believe that the relative price has increased,so they decrease production.

Question

Quizplus · Accepted Answer

According to the misperceptions theory, if the actual price level is higher than expected, firms may mistakenly believe that the relative price of their products has increased, leading them to increase production.

According to the Misperceptions Theory of the Short-Run Aggregate Supply