Workers expect the rate of inflation to fall from 5% to 2% next year. As a result, this should:
A)shift the short-run aggregate supply curve to the right.
B)shift the short-run aggregate supply curve to the left.
C)move the economy up along a stationary short-run aggregate supply curve.
D)move the economy down along a stationary short-run aggregate supply curve.

Question

Quizplus · Accepted Answer

If workers expect the rate of inflation to fall, they will demand lower wages, which will reduce production costs for firms. This will shift the short-run aggregate supply curve to the right, as firms can produce more at every price level.

Workers Expect the Rate of Inflation to Fall from 5