The aggregate supply curve is positively sloped because as the price level increases:
A) Profit margins increase in the short run.
B) Costs of production decline in the short run.
C) The purchasing power of money increases.
D) The cost of borrowing declines.

Question

Quizplus · Accepted Answer

The positively sloped aggregate supply curve indicates that as the price level increases, firms' profit margins increase in the short run, which motivates them to increase output. Conversely, when the price level falls, profit margins decrease, and firms respond by reducing output.

The Aggregate Supply Curve Is Positively Sloped Because as the Price