During the late 1990s in the United States, aggregate demand rose sharply but the price level increased much more slowly. This might be because during this period, firms:
A)were reluctant to increase their markups in the face of higher aggregate demand, causing the short-run aggregate supply curve to be steeper.
B)increased their markups in the face of higher aggregate demand, causing the short-run aggregate supply curve to be steeper.
C)increased their markups in the face of higher aggregate demand, causing the short-run aggregate supply curve to be flatter.
D)were reluctant to increase their markups in the face of higher aggregate demand, causing the short-run aggregate supply curve to be flatter.

Question

Quizplus · Accepted Answer

During the late 1990s, the phenomenon of aggregate demand rising sharply while the price level increased slowly can be attributed to firms being reluctant to increase their markups despite higher demand. This reluctance would cause the short-run aggregate supply curve to be flatter, allowing for an increase in output with a relatively smaller increase in the price level.

During the Late 1990s in the United States, Aggregate Demand