The short- run aggregate supply curve is upward sloping because
A) a lower price level creates a wealth effect.
B) most business firms operate with long- term contracts for output but not labor.
C) money wage rates do not immediately change when the price level changes.
D) lower taxes motivate people to work more.

Question

Quizplus · Accepted Answer

In the short run, money wage rates do not immediately adjust to changes in the price level, resulting in a higher cost of production and reduced profitability for firms as prices increase. This leads to a decrease in aggregate supply, creating an upward sloping short-run aggregate supply curve. Choices A, B, and D do not accurately explain the upward sloping short-run aggregate supply curve.

The Short- Run Aggregate Supply Curve Is Upward Sloping Because