If profits are high because the price level rose,
A) potential GDP must be decreasing.
B) it is likely the result of an increase in the real wage rate.
C) business failures rise and the quantity of real GDP supplied increases.
D) new businesses open and the quantity of real GDP supplied increases.
E) the AS curve shifts leftward.

Question

Quizplus · Accepted Answer

When profits are high due to a rise in the price level, it often encourages new businesses to open and existing businesses to expand production, leading to an increase in the quantity of real GDP supplied. This is because higher prices can improve profit margins, making it more attractive for businesses to increase supply.

If Profits Are High Because the Price Level Rose