The short-run aggregate supply curve (SRAS) slopes upward to the right because unexpected increases in prices will
A) increase aggregate demand as consumers buy more.
B) decrease aggregate demand as consumers buy less.
C) cause firms to expand output since the higher product prices will improve profitability.
D) cause firms to reduce output since the higher product prices will decrease profit margins.

Question

Quizplus · Accepted Answer

The upward slope of the SRAS curve indicates that firms are willing to increase output as prices rise in the short run. This is because higher prices will improve their profitability and they will have an incentive to produce more. Thus, unexpected increases in prices will cause firms to expand output, leading to an upward shift in the SRAS curve.

The Short-Run Aggregate Supply Curve (SRAS) Slopes Upward to the Right