An increase in the expected price level shifts
A)both the short-run and long-run aggregate supply curves to the left.
B)the short-run aggregate supply curve to the left but does not affect the long-run aggregate supply curve.
C)the long-run aggregate supply curve to the left but does not affect the short-run aggregate supply curve.
D)neither the long-run aggregate supply curve nor the short-run aggregate supply curve to the left.

Question

Quizplus · Accepted Answer

An increase in the expected price level makes producers expect higher prices for their products in the future, which can lead to a decrease in the supply of goods and services in the short run as they may hold off selling in anticipation of higher prices. However, the long-run aggregate supply curve is not affected by changes in the price level as it is determined by factors like technology, capital, and labor, which are not influenced by price expectations.

An Increase in the Expected Price Level Shifts