Suppose the price level is lower than expected.How will this affect output?
A) Businesses will decrease production.
B) Businesses will increase production.
C) Initially, the short-run aggregate supply curve will shift leftward, but later the movement will be downward along the curve.
D) Initially, the short-run aggregate supply curve will shift leftward, but later the movement will be upward along the curve.

Question

Suppose the price level is lower than expected.How will this affect output?  
A) Businesses will decrease production. 
B) Businesses will increase production. 
C) Initially, the short-run aggregate supply curve will shift leftward, but later the movement will be downward along the curve. 
D) Initially, the short-run aggregate supply curve will shift leftward, but later the movement will be upward along the curve.

Quizplus · Accepted Answer

When the price level is lower than expected, businesses typically decrease production because they anticipate lower revenues from selling their goods and services at lower prices. This is a common response to an unexpected drop in the price level.

Suppose the Price Level Is Lower Than Expected