Rising wages and business expenses tend to cause _____ inflation expectations, which shifts the:
A) higher; aggregate demand curve to the right.
B) higher; short-run aggregate supply curve to the left.
C) lower; aggregate demand curve to the left.
D) lower; short-run aggregate supply curve to the right.

Question

Quizplus · Accepted Answer

Rising wages and business expenses increase the cost of production, which tends to reduce the quantity of goods and services supplied at any given price level. This scenario shifts the short-run aggregate supply curve to the left, reflecting higher inflation expectations.

Rising Wages and Business Expenses Tend to Cause _____ Inflation