When the actual price level in an economy turns out to be lower than that expected in the short run,_____.
A)businesses cut back production
B)the potential output level decreases
C)the aggregate supply curve shifts leftward
D)the aggregate supply curve shifts rightward
E)an expansionary gap develops

Question

Quizplus · Accepted Answer

When the actual price level in an economy is lower than expected, businesses often cut back on production because they are receiving lower prices for their goods and services than they anticipated, which can reduce their profits. This does not necessarily mean the aggregate supply curve shifts; rather, it reflects a movement along the curve.

When the Actual Price Level in an Economy Turns Out