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 it produce had
A)increased,so it would increase production.
B)increased,so it would decrease production.
C)decreased,so it would increase production.
D)decreased,so it would decrease production.

Question

Quizplus · Accepted Answer

The misperceptions theory suggests that 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