The equation: quantity of output supplied = natural rate of output + a(actual price level - expected price level),where a is a positive number,represents
A)an upward-sloping, short-run aggregate supply curve.
B)a vertical, long-run supply curve.
C)a downward-sloping aggregate demand curve.
D)None of the above is correct.

Question

Quizplus · Accepted Answer

The given equation represents an upward-sloping, short-run aggregate supply curve, where the quantity of output supplied depends on the difference between the actual and expected price levels. As the actual price level increases relative to the expected price level, firms are willing to supply more output in the short run, leading to a positive slope in the aggregate supply curve.

The Equation: Quantity of Output Supplied = Natural Rate of Output