If inflation is underestimated by decision makers in the economy when it is rising, the SRAS curve will tend to be:
A)vertical.
B)horizontal.
C)downward sloping.
D)upward sloping.

Question

If inflation is underestimated by decision makers in the economy when it is rising, the SRAS curve will tend to be:
A)​vertical.
B)​horizontal.
C)​downward sloping.
D)​upward sloping.

Quizplus · Accepted Answer

If decision makers underestimate inflation, they may increase aggregate demand, causing firms to increase production and prices in the short run. This would result in an upward sloping SRAS curve.

If Inflation Is Underestimated by Decision Makers in the Economy