Along a short-run aggregate supply curve, a decrease in the price level means that
A) more output is produced as consumer demand increases.
B) less output is produced as firms decrease production.
C) more output is produced as firms increase production because wages fall more than the price level falls, making it profitable to hire more workers.
D) output does not change because firms do not change the quantity they produce.

Question

Quizplus · Accepted Answer

In the short run, a decrease in the price level can lead to firms producing less output, as their revenues decrease but their costs may not adjust as quickly, making production less profitable.

Along a Short-Run Aggregate Supply Curve, a Decrease in the Price