An increase in inflationary expectations that causes firms to increase their prices shifts the
A) aggregate supply curve to the left.
B) aggregate demand curve to the left.
C) aggregate supply curve to the right.
D) aggregate demand curve to the right.

Question

Quizplus · Accepted Answer

An increase in inflationary expectations that causes firms to increase their prices means that the cost of production for these firms has increased, resulting in a decrease in their profit margins. This leads to a decrease in the quantity supplied of goods and services, which shifts the aggregate supply curve to the left. Therefore, the correct answer is A) aggregate supply curve to the left.

An Increase in Inflationary Expectations That Causes Firms to Increase