If the price level in an economy turns out to be higher than that expected by workers and firms,_____.
A)businesses increase production.
B)the economy's potential output level increases.
C)the economy's short-run aggregate supply curve shifts rightward.
D)the economy's short-run aggregate supply curve shifts leftward.
E)a recessionary gap develops.

Question

Quizplus · Accepted Answer

When the price level in an economy is higher than expected by workers and firms, businesses typically respond by increasing production to capitalize on higher prices and potential profits. This is because the real wages are lower than expected, making labor relatively cheaper, encouraging firms to produce more.

If the Price Level in an Economy Turns Out to Be