Other things equal, an increase in the price level will:
A)shift the short run aggregate supply curve to the right.
B)shift the aggregate demand curve to the right.
C)cause a movement up along a short-run aggregate supply curve.
D)cause a movement down a short run aggregate supply curve.

Question

Quizplus · Accepted Answer

An increase in the price level will cause a movement up along a short-run aggregate supply curve, meaning that firms will produce more output in response to the higher prices. This is known as the movement along the curve, rather than a shift in the curve itself. Option A is incorrect because an increase in the price level would shift the short-run aggregate supply curve to the left, reflecting the higher costs of inputs. Option B is incorrect because a shift in aggregate demand is caused by factors other than just changes in the price level (such as changes in consumer or government spending). Option D is also incorrect because a movement down the short-run aggregate supply curve would indicate a decrease in output, which is not consistent with the explanation provided.

Other Things Equal, an Increase in the Price Level Will