If employees anticipate a rise in price levels, how might this expectation affect short-run aggregate supply?

When employees anticipate a rise in price levels, they are likely to expect higher costs of living and potentially higher costs associated with labor. This expectation can lead to workers demanding higher wages to keep up with the anticipated inflation. If employers grant these wage increases, their production costs rise, which can cause them to reduce the quantity of goods and services supplied at any given price level in the short run.

As a result, the aggregate supply curve shifts to the left, indicating a decrease in short-run aggregate supply. When production costs increase, businesses may find it less profitable to maintain current levels of output, leading to a reduction in the overall supply in the economy, especially in the short term. The anticipation of rising prices creates a scenario where costs rise, thereby negatively impacting the short-run aggregate supply.