If inflation turns out to be higher than expected,this will
A) shift long-run aggregate supply to the right.
B) shift long-run aggregate supply to the left.
C) shift short-run aggregate supply to the left.
D) shift short-run aggregate supply to the right.
E) have no effect on aggregate supply.

Question

Quizplus · Accepted Answer

If inflation turns out to be higher than expected, it means that the prices of the goods and services are rising faster than anticipated. As a result, firms' costs of production will increase, reducing their profitability, which leads to a decrease in the short-run aggregate supply. This shift in short-run aggregate supply reflects a decrease in the quantity of output that firms are willing to produce at any given price level.

If Inflation Turns Out to Be Higher Than Expected,this Will