Why might the short-run aggregate supply curve shift to the right in the long run, following a decrease in aggregate demand?
A)Workers and firms adjust their expectations of wages and prices downward and they accept lower wages and prices.
B)Workers and firms adjust their expectations of wages and prices downward and they push for higher wages and prices.
C)Workers and firms adjust their expectations of wages and prices upward and they push for higher wages and prices.
D)Workers and firms adjust their expectations of wages and prices upward and they accept lower wages and prices.

Question

Quizplus · Accepted Answer

In the long run, workers and firms adjust their expectations of wages and prices based on their experience with past inflation rates. If aggregate demand decreases and leads to a short-run decrease in prices, workers and firms will begin to expect lower wages and prices in the future. This means that they will be willing to accept lower wages and prices in the long run, shifting the short-run aggregate supply curve to the right.

Why Might the Short-Run Aggregate Supply Curve Shift to the Right