An explanation for why the short-run aggregate supply curve is upward-sloping is because:
A) the quantity of real output supplied is inversely related to the aggregate supply curve.
B) nominal incomes are fixed.
C) the capital-output ratio is fixed.
D) an increase in price will increase the marginal aggregate output.

Question

An explanation for why the short-run aggregate supply curve is upward-sloping is because:
A) ​the quantity of real output supplied is inversely related to the aggregate supply curve.
B) ​nominal incomes are fixed.
C) ​the capital-output ratio is fixed.
D) ​an increase in price will increase the marginal aggregate output.​

Quizplus · Accepted Answer

Nominal incomes being fixed in the short run means that as prices increase, the real income of workers and others does not adjust immediately. This lag in adjustment encourages firms to increase production because the real cost of labor is temporarily lower, making it more profitable to produce more. This relationship between price levels and the quantity of output supplied is why the short-run aggregate supply curve is upward sloping.

An Explanation for Why the Short-Run Aggregate Supply Curve Is