If people respond quickly to policy changes that imply future inflation will increase, the short run aggregate supply curve will shift upward due to their changed expectations.

Question

Quizplus · Accepted Answer

When people respond quickly to policy changes that imply future inflation will increase, they adjust their expectations of future prices and wages. This means that businesses will also adjust their prices and wages upward in anticipation of higher costs in the future. As a result, the short run aggregate supply curve will shift upward to reflect the higher costs of production in the economy.

If People Respond Quickly to Policy Changes That Imply Future