An increase in expected future prices causes
A) an increase in short-run aggregate supply.
B) a decrease in short-run aggregate supply.
C) a supply shock.
D) an upward movement along the aggregate supply curve.
E) menu costs.

Question

Quizplus · Accepted Answer

An increase in expected future prices means that firms expect to be able to sell their output for higher prices in the future, so they will produce less in the short run in order to save output for the future when prices are higher. This decreases short-run aggregate supply.

An Increase in Expected Future Prices Causes