The short-run aggregate supply curve is upward sloping because
A) money wage rates do not immediately change when the price level changes.
B) most business firms operate with long-term contracts for output but not labor.
C) a lower price level creates a wealth effect.
D) lower taxes motivate people to work more.

Question

Quizplus · Accepted Answer

The short-run aggregate supply curve is upward sloping because money wages do not immediately change when the price level changes. This means that in the short-run, firms face higher profits when the price level increases, as the cost of production does not immediately rise. However, in the long-run, as money wages adjust, the short-run aggregate supply curve becomes vertical.

The Short-Run Aggregate Supply Curve Is Upward Sloping Because