According to the law of short-run aggregate supply, as the price level rises, short-run aggregate
A) quantity supplied is not affected.
B) supply decreases.
C) quantity supplied decreases.
D) supply increases.
E) quantity supplied increases.

Question

Quizplus · Accepted Answer

The law of short-run aggregate supply states that as the price level rises, the quantity of goods and services that firms are willing to produce and sell increases, hence, quantity supplied increases. This is because higher prices can improve profit margins, encouraging firms to increase production.

According to the Law of Short-Run Aggregate Supply, as the Price