Changes in the expected rate of inflation will:
A) not shift the AS curve.
B) shift the AS curve upward or downward.
C) shift the AS curve leftward or rightward.
D) cause the AS curve to become downward-sloping.

Question

Quizplus · Accepted Answer

Changes in the expected rate of inflation can shift the AS curve upward or downward. Expectations of higher inflation can lead to higher input costs for firms, which will lead to a decrease in aggregate supply and an upward shift of the AS curve. Expectations of lower inflation can lead to lower input costs for firms, which will lead to an increase in aggregate supply and a downward shift of the AS curve.

Changes in the Expected Rate of Inflation Will