The relationship between sticky input prices and flexible output prices explains the
A) positive slope of the short-run aggregate supply curve.
B) vertical slope of the long-run aggregate supply curve.
C) negative slope of the short-run aggregate supply curve.
D) negative slope of the aggregate demand curve.
E) positive slope of both the short-run and long-run aggregate supply curves.

Question

Quizplus · Accepted Answer

Sticky input prices mean that the costs of production do not change immediately when there is a change in the price level, leading to a slower adjustment of output prices. Thus, in the short run, firms will be willing to supply more output at higher price levels to cover their fixed costs, resulting in a positive slope of the short-run aggregate supply curve.

The Relationship Between Sticky Input Prices and Flexible Output Prices