Firms and workers expect inflation to rise from 3% to 5% next year. As a result, this should

A. move the economy down along a stationary short-run aggregate supply curve.
B. shift the short-run aggregate supply curve down.
C. move the economy up along a stationary short-run aggregate supply curve.
D. shift the short-run aggregate supply curve up.

Option B. Shift the short-run aggregate supply curve down.

Explanation:

The reason is that the inflation increases the price of the product which results in decrease in the demand of the product and this decrease in the demand of the product due to increasing inflation results in decrease in the supply of the product because the firms have to control the marginal cost of the product to lower the prices and stay in demand. Hence option B is the correct option.

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