If the expected future inflation rate decreases, then
A) aggregate demand increases.
B) aggregate demand decreases.
C) long-run aggregate supply decreases.
D) short-run aggregate supply increases.

Question

Quizplus · Accepted Answer

A decrease in the expected future inflation rate means that people expect prices to rise less in the future. As a result, people would expect to pay less for goods and services in the future, and so they would be less willing to pay higher prices for them now. This would decrease aggregate demand.

If the Expected Future Inflation Rate Decreases, Then