A decrease 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

A decrease 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

A decrease in expected future price level will lead to a decrease in the cost of production, resulting in an increase in short-run aggregate supply (SRAS), shifting it to the right. However, the decrease in the expected future price level has no impact on the long-run aggregate supply (LRAS), which is determined by the available factors of production and technology. Therefore, LRAS remains unchanged.

A Decrease in the Expected Future Price Level