Question

QUESTION 7 The long run aggregate supply curve (LRAS) is vertical. What economic theory does this represent? o the liquidity theory O a liquidity trap O the classical dichotomy O constant returns to scale QUESTION 8 Why might prices be inflexible in the short run? O sticky wages O sticky prices O missperceptions o all of the above

Answer 1

Q7) correct option - constant return to scale

Long run aggregate supply curve is vertical because in the long run when demand will increase economy will be already producing at full capacity. Economy no more can produce extra amount of goods.

Q8) correct option - all of the above.

Inflexiblity in prices and especially in wages can prevent from eliminating shortages and surplus in the economy and achieve equilibrium. Prices stickiness generally arises in wage when wage rate does not decrease even the increase in unemployment this problem arises due to the misperception about the inflation on which workers set their wage demand.