The positive relationship between short-run aggregate supply and the price level indicates that, in the short run
A) firms produce more output as the price level falls.
B) firms produce more output as the price level rises.
C) the money wage rate increases when moving along the short-run aggregate supply curve.
D) lower price levels are more profitable for firms.

Question

Quizplus · Accepted Answer

In the short run, firms tend to produce more output as the price level rises because higher prices can lead to higher profits, assuming costs do not increase at the same rate. This positive relationship is a key aspect of the short-run aggregate supply curve.

The Positive Relationship Between Short-Run Aggregate Supply and the Price