Refer to the information provided in Figure 13.3 below to answer the questions that follow. Figure 13.3
-Refer to Figure 13.3.Assume the economy is currently at Point A on aggregate supply curve AS1.An increase in inflationary expectations that causes firms to increase their prices
A)shifts the aggregate supply curve to AS0.
B)shifts the aggregate supply curve to AS2.
C)moves the economy to Point C on aggregate supply curve AS1.
D)moves the economy to Point B on aggregate supply curve AS1.

Question

Refer to the information provided in Figure 13.3 below to answer the questions that follow.  Figure 13.3
-Refer to Figure 13.3.Assume the economy is currently at Point A on aggregate supply curve AS1.An increase in inflationary expectations that causes firms to increase their prices
A)shifts the aggregate supply curve to AS0. 
B)shifts the aggregate supply curve to AS2. 
C)moves the economy to Point C on aggregate supply curve AS1. 
D)moves the economy to Point B on aggregate supply curve AS1.

Quizplus · Accepted Answer

An increase in inflationary expectations that causes firms to increase their prices would shift the aggregate supply curve to AS2, as shown in Figure 13.3. This shift would result in a higher price level (P2) and a lower level of real GDP (Y1). Therefore, the economy would move from Point A to Point B on the aggregate demand curve AD1.

Refer to the Information Provided in Figure 13