THE LOCATION OF THE SRAS CURVE DEPENDS ON THE EXPECTED INFLATION RATE, SINCE WHETHER FIRMS ARE FOOLED DEPENDS ON THE INFLATION RATE THEY EXPECT TO PREVAIL. WHEN THEY ARE WRONG, THE ECONOMY MAY BE LOCATED AT A POINT ON THE SRAS CURVE, RATHER THAN THE LRAS CURVE. AS INFLATION EXPECTATIONS ADJUST, THE SRAS CURVE SHIFTS. • HIGHER EXPECTED INFLATION CAUSES THE SRAS CURVE TO SHIFT TO THE LEFT. FOR A GIVEN PRICE LEVEL, HIGHER INFLATION MEANS LOWER RELATIVE PRICES, SO FIRMS PRODUCE LESS.
THE LOCATION OF THE SRAS CURVE DEPENDS ON THE EXPECTED INFLATION RATE, SINCE WHETHER FIRMS ARE FOOLED DEPENDS ON THE INFLATION RATE THEY EXPECT TO PREVAIL. WHEN THEY ARE WRONG, THE ECONOMY MAY BE LOCATED AT A POINT ON THE SRAS CURVE, RATHER THAN THE LRAS CURVE. AS INFLATION EXPECTATIONS ADJUST, THE SRAS CURVE SHIFTS. • HIGHER EXPECTED INFLATION CAUSES THE SRAS CURVE TO SHIFT TO THE LEFT. FOR A GIVEN PRICE LEVEL, HIGHER INFLATION MEANS LOWER RELATIVE PRICES, SO FIRMS PRODUCE LESS.
Economics (MindTap Course List)
13th Edition
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Roger A. Arnold
Chapter16: Expectations Theory And The Economy
Section16.5: Looking At Things From The Supply Side: Real Business Cycle Theories
Problem 2ST
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