If the actual price level is higher than the expected price level in an economy, the economy will _____
A) have no structural unemployment.
B) experience a recession.
C) experience stagflation.
D) expand output in the short run.
E) have no seasonal unemployment.

Question

Quizplus · Accepted Answer

When the actual price level is higher than the expected price level, firms see higher profits because prices for their products are higher than anticipated, while many costs remain fixed or adjust more slowly. This encourages firms to increase production, leading to an expansion of output in the short run.

If the Actual Price Level Is Higher Than the Expected