The higher the average rate of inflation, the more frequently firms must adjust their prices, which implies that a high rate of inflation:
A)has no effect on the slope of the short-run aggregate supply curve.
B)should make the short-run aggregate supply curve flatter.
C)makes the short-run aggregate supply curve steeper.
D)causes prices to be sticky.

Question

Quizplus · Accepted Answer

A high rate of inflation makes the short-run aggregate supply curve steeper because firms must adjust their prices more frequently in response to changes in input prices and wages. This means that there is less room for them to adjust output in the short-run, making the supply curve steeper.

The Higher the Average Rate of Inflation, the More Frequently