If the price level in an economy turns out to be higher than that expected by workers and firms, _____.
A) firms 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, firms tend to increase production because they are receiving higher prices for their goods and services than anticipated, making production more profitable.

If the Price Level in an Economy Turns Out to Be