Everything else held constant, a change in workers' expectations about the inflation rate will cause ________ to change.
A) aggregate demand
B) short-run aggregate supply
C) the production function
D) long-run aggregate supply

Question

Quizplus · Accepted Answer

Workers' expectations about the inflation rate will affect their wage demands, which will in turn affect the cost of production for firms. If workers expect higher inflation rates, they will demand higher wages to compensate for the expected loss in purchasing power. This will increase firms' costs of production and shift the short-run aggregate supply curve to the left.

Everything Else Held Constant, a Change in Workers' Expectations About