The short-run aggregate supply curve is upward sloping because
A) a lower price level creates a wealth effect.
B) lower taxes motivate people to work more.
C) money wage rates do not immediately change when the price level changes.
D) most business firms operate with long-term contracts for output but not labor.

Question

Quizplus · Accepted Answer

The short-run aggregate supply curve is upward sloping because in the short run, money wage rates (and other input prices) do not immediately adjust to changes in the price level. This means that if the price level increases, the real wage (the wage rate adjusted for inflation) effectively decreases, making labor cheaper for firms and encouraging them to increase production.

The Short-Run Aggregate Supply Curve Is Upward Sloping Because