In the short-run, an increase in the average price level will cause:
A)demand for the good to increase but total production to decline.
B)profits to rise and, thus, total production to increase.
C)interest rates to fall and thus total production to decline.
D)input costs to fall and, thus, total production to rise.
E)input costs to fall and, thus, total production to decline.

Question

Quizplus · Accepted Answer

In the short-run, an increase in the average price level can lead to higher profits for firms because prices of goods and services rise faster than input costs, encouraging firms to increase production.

In the Short-Run, an Increase in the Average Price Level