Everything else held constant,a change in workers' expectations about inflation will cause ________ to change.
A)aggregate demand
B)short-run aggregate supply
C)the production function
D)long-run aggregate supply

Question

Quizplus · Accepted Answer

Workers' expectations about inflation will affect their wage demands. If workers expect higher inflation, they will demand higher wages to compensate for the expected loss of purchasing power. This increase in wages will lead to an increase in production costs, causing a shift in the short-run aggregate supply curve. Therefore, the correct answer is B, short-run aggregate supply.

Everything Else Held Constant,a Change in Workers' Expectations About Inflation