Everything else held constant,if workers expect an increase in the price level,________ aggregate supply ________.
A)long-run; increases
B)long-run; decreases
C)short-run; decreases
D)short-run; increases

Question

Quizplus · Accepted Answer

If workers expect an increase in the price level, they will likely demand higher wages to maintain their purchasing power. This increase in wages raises production costs for firms, leading to a decrease in short-run aggregate supply.

Everything Else Held Constant,if Workers Expect an Increase in the Price