KEY EQUATION

The short-run aggregate supply curve based on the misper­ceptions theory indicates that the aggregate amount of out­put supplied, Y, equals full-employment output, Y, when the price level, P, equals the expected price level, P^e. When the pricelevel is higher than expected (P > P^e), output exceedswhen the price level is lower than expected (P < P^e), output is less than Y.

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