Question 1. Explain the two theories of aggregate supply. On what market imperfection does each theory rely? What do the theories have in common?
Answer:
Sticky-price theory: price for the goods on the market do not change immediately to different occasions that might influence this changes. The goods on the market can’t be out bought instantly. Some firms respond to this by reducing the number of products, instead of price reduction. They do that, because they want to evade profit loss. Imperfect information theory: this theory purpose is to model the relationship between changes in the money supply, ...
