If increased inflation exceeds forecast inflation in the short run but NOT in the long run,what are the shapes of the aggregate supply curves?
A)AS is upward sloping in the short run and vertical in the long run.
B)AS is vertical in the short run and in the long run.
C)AS is vertical in the short run, and upward sloping in the long run.
D)AS is upward sloping in the short run and horizontal in the long run.

Question

Quizplus · Accepted Answer

The fact that increased inflation exceeds forecast inflation in the short run but not in the long run suggests that there may be some temporary factors causing inflation in the short run, but in the long run, the economy is expected to return to its natural level of output. This implies that the short-run aggregate supply curve (SRAS) is upward sloping due to temporary factors, such as shifts in input prices or supply shocks, while the long-run aggregate supply curve (LRAS) is vertical at the natural level of output, where inflation is consistent with the expected rate in the long run.

If Increased Inflation Exceeds Forecast Inflation in the Short Run