Workers expect inflation to rise from 3% to 5% next year.As a result, this should
A)shift the short-run aggregate supply curve to the left.
B)shift the short-run aggregate supply curve to the right.
C)move the economy up along a stationary short-run aggregate supply curve.
D)move the economy down along a stationary short-run aggregate supply curve.
E)shift the long-run aggregate supply curve to the right.

Question

Quizplus · Accepted Answer

An increase in expected inflation raises producers' costs of production, as they anticipate having to pay higher prices for inputs in the future. This causes a leftward shift in the short-run aggregate supply curve. As a result, the economy will experience higher prices and lower output in the short run.

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