If workers expect the rate of inflation to rise from 4 per cent to 6 per cent next year,this should
A) shift the short-run aggregate supply curve to the right.
B) shift the short-run aggregate supply curve to the left.
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.

Question

Quizplus · Accepted Answer

An expectation of higher inflation would raise production costs for firms, as they would need to pay higher wages and prices for raw materials. As a result, they would supply less output at each price level, shifting the short-run aggregate supply curve to the left. This would lead to higher prices and lower output in the short run.

If Workers Expect the Rate of Inflation to Rise from 4