Suppose the actual and expected price levels in an economy are initially equal. However, the actual price level falls eventually due to a change in economic conditions. Which of the following will occur in the long run?
A) The economy will move upward along the short-run aggregate supply curve.
B) The economy will move downward along the short-run aggregate supply curve.
C) The short-run aggregate supply curve will shift to the right.
D) The short-run aggregate supply curve will shift to the left.
E) The short-run aggregate supply curve will become flatter.

Question

Quizplus · Accepted Answer

When the actual price level falls due to a change in economic conditions, in the long run, firms adjust their expectations and production costs decrease. This leads to an increase in the quantity of goods and services supplied at every price level, causing the short-run aggregate supply (SRAS) curve to shift to the right.

Suppose the Actual and Expected Price Levels in an Economy