Question: Suppose that people expect deflation (a falling price level), but aggregate demand remains at AD0. a. What happens to the short-run and long-run aggregate supply

Suppose that people expect deflation (a falling price level), but aggregate demand remains at AD0.
a. What happens to the short-run and long-run aggregate supply curves? (Draw some new curves if you need to.)
b. Describe the initial effects of an expected deflation.
c. Describe what happens as it becomes obvious to everyone that the expected deflation is not going to occur.

LAS SAS2 5 240 200 160 SAS SAS AD 1 80 ADi ADo 14 0 8 10 12

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