A change in the expected price level shifts the short-tun aggregate supply curve, but not the...

A change in the expected price level shifts the short-tun aggregate supply curve, but not the long-run aggregate-supply curve ?

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Expert Solution

The above statement is true.

A change in the expected price level shifts the short run aggregate supply curve, but not the long run aggregate supply curve.
The short run aggregate supply curve is sensitive to the expected price level changes.
When the quantity supplied of various goods and services increases in the Economy, the price level also rises, which will cause the short run aggregate supply curve to slope upwards.
The short run aggregate supply curve shows that there is a positive correlation between price and the output.
That is when the short run aggregate supply curve slopes upwards due to price change, real GDP also increases at the given price.
The long run aggregate supply curve determines the change in the total Economic output due to change in the aggregate demand.
It is not related to the changes in the Expected price level. Hence it is static in nature and does not respond to the change in the expected prices.

Rahul Sunny answered 1 year ago

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