Which of the following statements concerning price rigidity is true A. Prices wi

Question

Which of the following statements concerning price rigidity is true

A.Prices will be rigid when there is unanticipated monetary policy but not when there is anticipated monetary policy.

B.When there are demand changes, firms will not change their price because of the costs associated with renegotiating contracts and informing customers of price changes.

C.Since the economy experiences continued inflation prices are not rigid.

D.Data has clearly demonstrated that the long run aggregate supply curve is horizontal.

Explanation / Answer

In case of Price Rigidities, if there is a change in demand, there will be no change in the price because of the menu costs and the aggregate demand externality associated with renegotiating contracts and informing customers of price changes. Hence option (b).

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