Question

The short-run effects of an increase in the expected price level include a. a lower level of output and a lower price level. b. a lower level of output and a higher price level. c. a higher level of output and a lower price level. d. a higher level of output and a higher price level.

Answer 1

Answer: Option (b) is correct.

Explanation:

Correct option: A lower level of output and a higher price level.

If there is an increase in the expected price level, as a result short run aggregate supply curve shifts leftward. Therefore, this shift in aggregate supply curve will increase the price level and reduces the level of output in an economy. The long run supply curve will be unaffected by any change in the expected price level.