An upward sloping short-run aggregate supply curve suggests that
A) real GDP is determined by aggregate supply.
B) prices and wages are completely inflexible.
C) prices and wages are completely flexible.
D) prices and wages adjust in part to short-run demand changes.

Question

Quizplus · Accepted Answer

An upward sloping short-run aggregate supply curve suggests that prices and wages adjust in part to short-run demand changes. In other words, when demand for goods and services increases, prices and wages increase in response, which in turn increases the quantity of output supplied. However, this adjustment is only partial in the short run, as prices and wages are not completely flexible in the short run. In the long run, the aggregate supply curve becomes vertical, indicating that prices and wages have fully adjusted to changes in demand.

An Upward Sloping Short-Run Aggregate Supply Curve Suggests That