Question

The effects of a higher than expected price level are shown by a. shifting the short-run...

The effects of a higher than expected price level are shown by a. shifting the short-run aggregate supply curve right. b. shifting the short-run aggregate supply curve left. c. moving to the right along a given short-run aggregate supply curve. d. moving to the left along a given short-run aggregate supply curve.

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Answer #1

Option C

  • Just like how consumers make decisions on purchasing certain goods and services based on their expectations of price level, the producers and suppliers also determine the supply level on the basis of their price level expectations.
  • If the producers expect the prices to rise in future, they cut back their supply in present as they believe that they can earn higher profits in near future.
  • In the future when the price level is higher than expected, as the aggregate supply increases and hence the aggregate supply curve shifts to the right.
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