The positive relationship between short- run aggregate supply and the price level indicates that, in the short run,
A) firms produce more output as the price level falls.
B) the money wage rate increases when moving along the short- run aggregate supply curve.
C) lower price levels are more profitable for firms.
D) firms produce more output as the price level rises.

Question

Quizplus · Accepted Answer

The positive relationship between short-run aggregate supply (SRAS) and the price level indicates that, in the short run, firms will produce more output as the price level rises. This is because as prices increase, firms are able to earn higher profits and have an incentive to increase production. Conversely, if prices were to fall, the profitability of production would decrease and firms would produce less. Therefore, the correct answer is (D) firms produce more output as the price level rises.

The Positive Relationship Between Short- Run Aggregate Supply and the Price