Which of the following explains why higher prices in the goods and services market measured by the CPI leads to an upward-sloping aggregate supply curve?
A) The higher prices will temporarily improve profit margins because the cost of wages and salaries are fixed in the short run.
B) The higher prices will reduce the purchasing power of the fixed quantity of money and, thereby, stimulate additional output.
C) The higher prices will expand the economy's resource base and, thereby, stimulate additional output.
D) The higher prices will improve technology and, thereby, stimulate additional output.

Question

Which of the following explains why higher prices in the goods and services market measured by the CPI leads to an upward-sloping aggregate supply curve? ​
A) ​The higher prices will temporarily improve profit margins because the cost of wages and salaries are fixed in the short run.
B) ​The higher prices will reduce the purchasing power of the fixed quantity of money and, thereby, stimulate additional output.
C) ​The higher prices will expand the economy's resource base and, thereby, stimulate additional output.
D) ​The higher prices will improve technology and, thereby, stimulate additional output.

Quizplus · Accepted Answer

The upward-sloping aggregate supply curve is explained by the fact that higher prices in the goods and services market can temporarily improve profit margins for businesses because wages and other costs are often fixed in the short run. This encourages firms to increase output.

Which of the Following Explains Why Higher Prices in the Goods