How does the distinction between flexible and sticky prices affect the study of macroeconomics?
A) The study of flexible prices is confined to microeconomics,while macroeconomics focuses on sticky prices.
B) Macroeconomists use flexible prices to explain inflation and sticky prices to explain unemployment.
C) Flexible prices are typically assumed in the study of the long run,while sticky prices are assumed in the study of the short run.
D) Endogenous variables are measured using flexible prices,while exogenous variables are measured using sticky prices.

Question

Quizplus · Accepted Answer

The distinction between flexible and sticky prices is important in macroeconomics as it helps in understanding the behavior of the economy in the short run and long run. In the short run, prices are assumed to be sticky, i.e. they do not adjust immediately to changes in demand or supply. In contrast, in the long run, prices are assumed to be more flexible, i.e. they can adjust to changes in demand and supply over time. Therefore, macroeconomists often use the assumption of sticky prices to explain short-run fluctuations in the economy, while the assumption of flexible prices is typically used in the study of the long run.

How Does the Distinction Between Flexible and Sticky Prices Affect