True. Flexible prices can play a significant role in how unexpected changes in demand affect GDP and employment during the business cycle. When prices are flexible, they can adjust more rapidly to shifts in demand. For example, if there's an unexpected increase in demand, prices may rise quickly, encouraging producers to increase output and hire more workers. Conversely, if demand falls unexpectedly, prices can decrease, potentially leading to reduced output and layoffs. These dynamics can contribute to the fluctuations in GDP and employment that characterize the business cycle. Thus, flexible prices can help explain the relationship between demand shocks and economic fluctuations.
True or false: Flexible prices help to explain how unexpected changes in demand lead to the fluctuations in GDP and employment that occur over the course of the business cycle
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