Refer to the information provided in Figure 27.3 below to answer the question(s) that follow. Figure 27.3 -Refer to Figure 27.3. Assume the economy is currently at Point A on aggregate supply curve AS₁. An increase in inflationary expectations that causes firms to increase their prices A) shifts the aggregate supply curve to AS₀. B) shifts the aggregate supply curve to AS₂. C) moves the economy to Point C on aggregate supply curve AS₁. D) moves the economy to Point B on aggregate supply curve AS₁.

Question

Quizplus · Accepted Answer

An increase in inflationary expectations that causes firms to increase their prices results in a decrease in aggregate supply. This means that the aggregate supply curve will shift leftward from AS₁ to AS₂, as shown in Figure 27.3. Therefore, the correct choice is option B.

Refer to the Information Provided in Figure 27