If the actual price level exceeds the expected price level reflected in long-term contracts,
A)firms will find production more profitable than they had expected and will increase the quantity of output supplied
B)firms will find production less profitable than they had expected and will decrease the quantity of output supplied
C)firms will find production more profitable than they had expected and will decrease the quantity of output supplied
D)resource owners,because they are making a lower profit than they had expected,will decrease the quantity of output supplied
E)unemployment will increase

Question

Quizplus · Accepted Answer

If the actual price level exceeds the expected price level, firms will find production more profitable than they had expected and will increase the quantity of output supplied. This is because the higher price level increases the revenue earned by firms, which makes it more profitable for them to produce and sell more goods and services. As a result, the quantity of output supplied will increase.

If the Actual Price Level Exceeds the Expected Price Level