Determine the effect on either the aggregate demand curve (is it a rightward or a leftward shift?), the aggregate short-term supply curve, and the long-term aggregate supply curve (does the upward sloping portions of the SAS curve shift left or right, or does the vertical portion of the LAS curve shift to the right or the left?). Also determine the effect on the price level, the real output level, and employment/unemployment. Explain and express this graphically using the AS/AD macro model.
If workers begin to expect more inflation in the future, then we would expect that the short-run aggregate supply curve will shift up. If workers expect more inflation in the future, they will want their wages to increase more rapidly today. This will increase production costs at each production level, causing firms to increase prices at each production level.
Determine the effect on either the aggregate demand curve (is it a rightward or a leftward shift?), the aggregate short-term supply curve, and the long-term aggregate supply curve (does the upward sloping portions of the SAS curve shift left or right, or does the vertical portion of the LAS curve shift to the right or the left?). Also determine the effect on the price level, the real output level, and employment/unemployment. Explain and express this graphically using the AS/AD macro model.
If workers begin to expect more inflation in the future, then we would expect that the short-run aggregate supply curve will shift up. If workers expect more inflation in the future, they will want their wages to increase more rapidly today. This will increase production costs at each production level, causing firms to increase prices at each production level.
