When the expected price level falls below the actual price level,firms
A)increase production in the short run
B)decrease production in the short run
C)maintain production in the short run but increase prices
D)maintain production in the short run but decrease prices
E)decrease production and lower prices in the short run

Question

Quizplus · Accepted Answer

When the expected price level falls below the actual price level, firms see higher-than-expected prices for their goods, which can lead to increased production in the short run to capitalize on higher profits.

When the Expected Price Level Falls Below the Actual Price