In the short run, an increase in the price level causes:
A) a rightward shift in the aggregate demand curve.
B) a leftward shift in the short-run aggregate supply curve.
C) a rightward shift in the short-run aggregate supply curve.
D) a movement upward along the short-run aggregate supply curve.

Question

Quizplus · Accepted Answer

An increase in the price level in the short run leads to a movement upward along the short-run aggregate supply curve. This is because, in the short run, firms cannot easily adjust their production levels in response to changes in the price level, so they increase their output at higher prices. Consequently, a movement upward along the short-run aggregate supply curve shows an increase in output in response to higher prices.

In the Short Run, an Increase in the Price Level