Refer to the information provided in Figure 13.3 below to answer the questions that follow. Figure 13.3 -Refer to Figure 13.3.Assume the economy is currently at Point A on aggregate supply curve AS₁.An increase in inflationary expectations that causes firms to increase their prices A)shifts the aggregate supply curve to AS₀. B)shifts the aggregate supply curve to AS₂. C)moves the economy to Point C on aggregate supply curve AS₁. D)moves the economy to Point B on aggregate supply curve AS₁.

Question

Quizplus · Accepted Answer

An increase in inflationary expectations that causes firms to increase their prices would shift the aggregate supply curve to the left, as shown by the movement from AS₁ to AS₂. This is because firms would be willing to supply a smaller quantity of goods and services at any given price level. Therefore, the new equilibrium would be at Point B on the aggregate supply curve AS₂.

Refer to the Information Provided in Figure 13