Question

An increase in expected inflation causes the short-run aggregate supply curve (SRAS) to increase (shift down and to the right).

False

True

Answer 1

An increase in expected inflation causes the short-run aggregate supply curve (SRAS) to increase (shift down and to the right)

The above statement is false

Reason

Increase in inflation will make short-run aggregate supply curve (SRAS) to decrease (shift up and to the left) because when inflation comes the price level increases in the economy which lead to an increase in the cost of inputs for production so this results in a decrease in production as now the chances for earning higher profits reduces thus leading to a decrease in production which also decreases the supply curve by shifting up to the left..

Hence, the correct statement would be

An increase in expected inflation causes the short-run aggregate supply curve (SRAS) to decrease (shift up and to the left)