Question

Complete the statements about the following three theories for the upward slope of the short-run aggregate-supply curve.

According to the sticky-wage theory, the economy is in a recession because the price level has declined so that real wages are too_____ , thus labor demand is too______ .
According to the sticky-price theory, the economy is in a recession because______ .
According to the misperceptions theory, the economy is in a recession when the price level is_______ what was expected. (fill in the blanks).

Answer 1

high,high

not all prices adjust quickly

below

Step-by-step explanation:

According to the sticky-wage theory, the economy is in a recession because the price level has declined so that real wages are too high, thus labor demand is too high.

Real wages decline as nominal wages are adjusted. As a result, the economy returns to full employment

According to the sticky-price theory, the economy is in a recession because not all prices adjust quickly.

As people observe the lower price level, the economy returns to the long-run aggregate supply curve.

According to the misperceptions theory, the economy is in a recession when the price level is below what was expected.

As people observe the lower price level, their expectations adjust.