Within the framework of the AS/AD model, which of the following is a true statement regarding short-run aggregate supply?
A) An increase in prices temporarily improves profit margins because important components of costs are fixed in the short run.
B) An increase in prices leads to higher interest rates, which temporarily improves profit margins.
C) An increase in prices leads to an expansion in the money supply, which stimulates additional output.
D) An increase in prices increases real wage rates and thereby expands the size of the economy's resource base.

Question

Quizplus · Accepted Answer

In the short run, some costs are fixed, and an increase in prices can temporarily improve profit margins for firms. This is the reason why short-run aggregate supply is upward sloping. Choices B, C, and D are incorrect because they do not accurately describe the relationship between short-run aggregate supply and changes in prices.

Within the Framework of the AS/AD Model, Which of the Following