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. A decrease in inflationary expectations that causes firms to decrease 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

A decrease in inflationary expectations that causes firms to decrease their prices would shift the aggregate supply curve to the left, from AS₁ to AS₀. This represents a decrease in the quantity of goods and services supplied at each price level, indicating a contraction in the economy. The economy would move from Point A to a new equilibrium point on the new aggregate supply curve, not to Point C or Point B on the original curve.

Refer to the Information Provided in Figure 27