An increase in the expected future price level:
A)Shifts both SRAS and LRAS to the left.
B)Shifts both SRAS and LRAS to the right.
C)Shifts SRAS left but leaves LRAS unchanged.
D)Shifts SRAS right but leaves LRAS unchanged.

Question

An increase in the expected future price level:
A)​Shifts both SRAS and LRAS to the left.
B)​Shifts both SRAS and LRAS to the right.
C)​Shifts SRAS left but leaves LRAS unchanged.
D)​Shifts SRAS right but leaves LRAS unchanged.

Quizplus · Accepted Answer

An increase in the expected future price level would lead to an increase in the current price level. This, in turn, would lead to a decrease in the quantity of goods and services supplied in the short run due to higher costs. Therefore, the short-run aggregate supply (SRAS) would shift left, as represented by choice C. However, the long-run aggregate supply (LRAS) is determined by factors such as technology, resources, and institutions, which are independent of price changes. Hence, the LRAS remains unchanged.

An Increase in the Expected Future Price Level