What might happen if workers successfully negotiate higher wages based on their inflation expectations?

When workers negotiate higher wages due to their inflation expectations, it can lead to an increase in the cost of production for businesses. Higher wages mean that companies have to spend more on labor costs, which can subsequently reduce their profit margins unless they adjust prices. In the short run, this increase in production costs can cause the short-run aggregate supply curve to shift leftward.

A leftward shift in the short-run aggregate supply indicates that at the original price level, a lower quantity of goods and services is now being supplied in the economy. This shift can lead to higher prices and lower output in the economy, which reflects a decrease in short-run aggregate supply.

This understanding connects to the broader economic context: when costs of production rise due to wage increases, businesses may pass these costs onto consumers through higher prices, contributing to inflation. Thus, the correct answer captures the immediate impact on short-run aggregate supply as workers push for higher wages in response to inflation expectations.