The short-run aggregate supply curve slopes upward because a _____ aggregate price level leads to _____.
A) higher; lower output as costs of production increase
B) higher; higher output, since most production costs are fixed in the short run
C) lower; higher output, since production costs tend to fall in the short run
D) lower; higher profit and higher productivity

Question

Quizplus · Accepted Answer

In the short run, firms have some fixed costs that cannot be easily changed. As the aggregate price level increases, the prices of inputs such as labor and raw materials do not immediately increase, leading to increased profits for the firms. This incentivizes firms to increase output, causing the short-run aggregate supply curve to slope upward.

The Short-Run Aggregate Supply Curve Slopes Upward Because a _____