A(n) ________ in inflationary expectations that causes firms to increase their prices shifts the aggregate supply curve to the ________.
A) decrease; right
B) increase; right
C) decrease; left
D) increase; left

Question

Quizplus · Accepted Answer

An increase in inflationary expectations causes firms to expect higher prices for their products in the future, so they increase their prices now. This leads to a decrease in the purchasing power of consumers, and as a result, firms produce less in the short-run. This shift is represented by a leftward shift in the aggregate supply curve. Therefore, option D is the correct choice.

A(n) ________ in Inflationary Expectations That Causes Firms to Increase