If people's expectations about future price levels change:
A)the short-run aggregate-supply curve shifts
B)the short-run aggregate-supply curve is not affected
C)the short-run aggregate-supply curve becomes vertical
D)the short-run aggregate-supply curve becomes horizontal
E)all of the above are possible

Question

Quizplus · Accepted Answer

A change in people's expectations about future price levels will shift the short-run aggregate-supply curve. If people expect higher prices in the future, then firms may increase production in the short-run to take advantage of the higher prices and shift the short-run aggregate-supply curve to the right. Conversely, if people expect lower prices in the future, then firms may decrease production in the short-run and shift the short-run aggregate-supply curve to the left.

If People's Expectations About Future Price Levels Change