Suppose the actual price level is below the expected price level.Given implicit or explicit resource price agreements, what effect will this have on the short-run aggregate supply curve?
A) The economy will move rightward along the short-run aggregate supply curve.
B) The economy will move leftward along the short-run aggregate supply curve.
C) The short-run aggregate supply curve will shift to the left.
D) The short-run aggregate supply curve will become flatter.

Question

Suppose the actual price level is below the expected price level.Given implicit or explicit resource price agreements, what effect will this have on the short-run aggregate supply curve?  
A) The economy will move rightward along the short-run aggregate supply curve. 
B) The economy will move leftward along the short-run aggregate supply curve. 
C) The short-run aggregate supply curve will shift to the left. 
D) The short-run aggregate supply curve will become flatter.

Quizplus · Accepted Answer

If the actual price level is below the expected price level, suppliers will decrease production as the prices are not meeting their expectations. This will lead to a leftward shift of the short-run aggregate supply curve. Therefore, choice B is the correct answer.

Suppose the Actual Price Level Is Below the Expected Price