According to the sticky-price model, other things being equal, the greater the proportion s of firms that follow the sticky-price rule, the the in output in response to an unexpected price increase.

B) smaller; increase

Explanation:

Sticky prices are prices that do not adjust immediately to changing economic conditions.

The aggregate supply curve shows the relationship between the price level and output. The long run aggregate supply curve is vertical while the short run aggregate supply curve is upward sloping.

Sticky price model is one of the models used to explain why the short-run aggregate supply curve slopes upward:

1. Sticky-Price Model: It is based on the idea that firms do not adjust their price immediately to changes in the economy.

Firms takes into consideration the expected price level when fixing price. A high expected price level depicts that firms fixes a high price in order to compensate for the increase in inputs price.

The law of supply states that producers produce more at high prices. It is safe to say that, an increase in price leads to an increase in output in the sticky price model.

2.Sticky-Wage Model states that workers are paid based on permanent pay schedule. That is, the wage agreed upon by the employees and employers. A change in the economy doesn't change the workers wage immediately.

3.Worker-Misperception Model: Here, wages changes with a change in the economy. The willingness of a worker to work is based on the expected real wahe. The higher the real wahe; the more workers are willing to work, the lower the real wahe; the less work workers are willing to do.

4.Imperfect-Information Model

In this model, neither the worker or the firm have complete information about the real wage, nominal wage and price level. producers only recognize changes in the prices of the goods and services that they produce.

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