Consider the three theories of 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 . True or False: According to the sticky-price theory, the economy is in a recession because people expect prices to rise quickly in a recession. True False According to the misperceptions theory, the economy is in a recession when the price level is what was expected.

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. According to this theory, the increase of real wages will result in lower production levels and lower employment.

According to the sticky-price theory, the economy is in a recession because people expect prices to rise quickly in a recession.

⇒TRUE. The sticky price theory is based on the concept that prices will not change quickly enough to adjust to a new optimal equilibrium level.

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

⇒FALSE. According to this theory if the price level decreases, suppliers will reduce output levels resulting in a recession.

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