The short-run aggregate supply curve is upsloping because higher price levels
A)lower interest rates and encourage firms to invest and produce more.
B)create incentives to expand output when resource prices are unresponsive to price-level changes.
C)encourage importation of foreign goods.
D)create an expectation among producers of still higher price levels.

Question

Quizplus · Accepted Answer

In the short run, resource prices (like wages) are often sticky and do not adjust immediately to changes in the price level. Therefore, when the price level rises, firms can increase their output because their costs remain relatively constant, leading to higher profits. This creates an incentive to expand production, resulting in an upward-sloping short-run aggregate supply curve.

The Short-Run Aggregate Supply Curve Is Upsloping Because Higher Price