If the money wage and other resource prices do not change when the price level rises by 10 percent, .
A) the short-run aggregate supply curve shifts leftward
B) there is movement along the short-run aggregate supply curve
C) the long-run aggregate supply curve shifts leftward
D) the long-run aggregate supply curve shifts rightward

Question

Quizplus · Accepted Answer

When the price level rises by 10 percent but the money wage and other resource prices do not change, there is movement along the short-run aggregate supply curve. This is because the firms will produce more output in response to the higher price level, which will result in a temporary increase in their profits. However, in the long run, as wages and other resource prices adjust to the higher price level, the short-run aggregate supply curve will shift leftward, indicating that the level of output will return to its natural level. The long-run aggregate supply curve will not shift in this case because there are no changes in the economy's potential output or in the factors affecting it.

If the Money Wage and Other Resource Prices Do Not