If the Fed were to announce that fighting inflation is not a high priority for the immediate future ________.
A)households might expect higher inflation
B)the short run aggregate supply would shift upwards
C)firms might begin raising their prices to keep up with expected inflation
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

When the Fed announces that fighting inflation is not a high priority, it signals to the market that higher inflation might be tolerated or expected in the near future. This can lead households to expect higher inflation, which in turn can lead firms to raise their prices in anticipation of higher costs and inflation, affecting both demand and supply sides of the economy.

If the Fed Were to Announce That Fighting Inflation Is