In the upward-sloping range of the short-run aggregate supply curve, firms are willing to supply more output when the overall price level increases because:
A) nominal wages are sticky, so an increase in the price level increases the profit earned by firms.
B) real wages are sticky, so an increase in the price level increases the profits earned by firms.
C) firms can employ better technology at a higher price level and produce more output.
D) more workers are willing to work at a higher price level, so firms can produce more output.

Question

Quizplus · Accepted Answer

In the short run, nominal wages are often sticky due to contracts and other rigidities. When the overall price level increases, firms receive higher prices for their products while their wage costs remain the same, leading to higher profits and an incentive to increase output.

In the Upward-Sloping Range of the Short-Run Aggregate Supply Curve