If the expected price level exceeds the actual price level in an economy, _____
A) firms increase production in the short run.
B) firms decrease production in the short run.
C) firms maintain production in the short run but increase prices.
D) firms maintain production in the short run but decrease prices.
E) firms pay higher prices to resources in the short run.

Question

Quizplus · Accepted Answer

When the expected price level exceeds the actual price level, firms find that the prices they can charge for their products are lower than anticipated. This typically leads to a decrease in production in the short run as firms adjust to the lower-than-expected revenue.

If the Expected Price Level Exceeds the Actual Price Level