The short- run aggregate supply curve is upward sloping because in the short run the
A) both the money wage rate and the price level change.
B) neither the money wage rate nor the price level can change.
C) price level changes but the money wage rate does not.
D) money wage rate changes but the price level does not.

Question

Quizplus · Accepted Answer

In the short run, firms are able to adjust their output levels by varying the amount of labor and capital they use. However, they are not able to adjust their wage rates immediately. Therefore, as output increases, firms will need to pay their workers more overtime, hire additional workers at higher wages, or both. This drives up production costs, causing the short-run aggregate supply curve to slope upward. Meanwhile, the price level can adjust freely in the short run, as firms respond to changes in demand by adjusting their prices.

The Short- Run Aggregate Supply Curve Is Upward Sloping Because