Workers and firms both expect that prices will be 2.5% higher next year than they are this year.As a result
A)workers will be willing to take lower wages next year,but not lower than a 2.5 percent decrease.
B)the purchasing power of wages will rise if wages increase by 2.5%.
C)the short-run aggregate supply curve will shift to the left as wages increase.
D)aggregate demand will increase by 2.5%.

Question

Quizplus · Accepted Answer

If workers and firms expect prices to be higher next year, workers will likely demand higher wages to maintain their purchasing power, and firms will adjust their prices accordingly. This can lead to an increase in production costs for firms, which might reduce the quantity of goods and services supplied at any given price level, shifting the short-run aggregate supply curve to the left.

Workers and Firms Both Expect That Prices Will Be 2