The equation: quantity of output supplied = natural rate of output + aactual price level - expected price level), where
A is a positive number, represents
A) an upward-sloping short-run aggregate supply curve
B) a vertical short-run aggregate supply curve
C) a downward-sloping aggregate demand curve
D) None of the above is correct.

Question

Quizplus · Accepted Answer

The equation given represents the short-run aggregate supply curve, which is upward-sloping. The natural rate of output represents the level of output produced when all inputs are utilized at their normal rates. The actual price level represents the price at which firms sell their output. The expected price level represents the price that firms anticipated when they made their production decisions. The difference between the actual and expected price levels indicates whether firms are willing to produce more or less output. As a positive number, A suggests that firms' output decisions are responsive to changes in the price level. Hence, the equation represents an upward-sloping short-run aggregate supply curve.

The Equation: Quantity of Output Supplied = Natural Rate of Output