If workers underestimate inflation, the aggregate supply curve will tend to be
A)upward sloping.
B)downward sloping.
C)vertical.
D)horizontal.

Question

Quizplus · Accepted Answer

If workers underestimate inflation, they will expect lower prices for their goods and services. As a result, they will supply more to the market than what is demanded, leading to an excess supply. To sell their excess supply, workers will lower their prices, and the overall price level will decrease. This will shift the short-run aggregate supply curve to the right, causing it to be upward sloping.

If Workers Underestimate Inflation, the Aggregate Supply Curve Will Tend