An increase in the expected future inflation rate will:
Click on the arrows to vote for the correct answer
A. B. C. D.Explanation
An increase in the expected future inflation rate will have two impacts. First, sellers will have reduced incentive to sell at current prices; they would rather store the current production for future sales at higher prices. Secondly, resource suppliers, to the extent that they anticipate the higher inflation, will increase the resource prices in their contracts. Both these factors will serve to reduce the quantity the producers will be ready to supply at any given price, moving the short run supply curve to the left. The long-run supply curve will not be affected since over that period, all adjustments to the expected future conditions will have been made, restoring the equilibrium.