-In the above figure, the economy is at point A. Then the price level rises to 110 while the money wage rate remains constant. Firms will be willing to supply output equal to
A) less than $16.0 trillion.
B) $16.0 trillion.
C) more than $16.0 trillion.
D) Without more information, it is impossible to determine which of the above answers is correct.

Question

-In the above figure, the economy is at point A. Then the price level rises to 110 while the money wage rate remains constant. Firms will be willing to supply output equal to
A) less than $16.0 trillion. 
B) $16.0 trillion. 
C) more than $16.0 trillion. 
D) Without more information, it is impossible to determine which of the above answers is correct.

Quizplus · Accepted Answer

When the price level rises while the money wage rate remains constant, firms' profit margins increase because their costs (in terms of wages) do not rise with prices. This incentivizes firms to increase production to take advantage of higher profits, leading to a supply of output greater than before the price level rise.

-In the Above Figure, the Economy Is at Point A Then