The short-run aggregate supply curve
A) is vertical because the economy is at full capacity.
B) is upward sloping because some costs are slow to rise as output expands.
C) is horizontal because input prices do not rise as output rises.
D) cannot be generalized because each economy is unique.

Question

Quizplus · Accepted Answer

The short-run aggregate supply curve is upward sloping because some costs, particularly nominal wages, are slow to rise as output expands. This means that firms are able to produce more output at a given price level in the short-run, but eventually, as wages and other costs increase, the SRAS curve will shift upward. Choices A, C, and D are incorrect because the SRAS curve is not always vertical or horizontal, and while each economy may have unique characteristics, the concept of a SRAS curve is a general one that applies to most economies.

The Short-Run Aggregate Supply Curve