According to the new classical approach to the aggregate supply curve, the aggregate supply curve slopes upward because
A)increases in the price level result in lower real balances.
B)higher current output results in higher desired investment.
C)higher prices result in higher levels of spending as consumers attempt to stay ahead of inflation.
D)businesses have difficulty in distinguishing relative price increases from general price increases.

Question

Quizplus · Accepted Answer

The new classical approach suggests that the aggregate supply curve slopes upward because businesses often have trouble distinguishing between an increase in the prices of the products they sell (relative price increase) and an increase in the general price level (inflation). This confusion can lead to increased production as businesses mistakenly believe they are seeing a rise in relative demand for their products.

According to the New Classical Approach to the Aggregate Supply