If the actual price level exceeds the expected price level reflected in long-term contracts,
A) firms will find production more profitable than they had expected and will decrease the quantity of output supplied
B) firms will find production less profitable than they had expected and will decrease the quantity of output supplied
C) firms will find production less profitable than they had expected and will increase the quantity of output supplied
D) unemployment will decrease

Question

Quizplus · Accepted Answer

When the actual price level exceeds the expected price level, firms find production more profitable, leading to an increase in output and a decrease in unemployment.

If the Actual Price Level Exceeds the Expected Price Level