Question

Exam

Answer 1

The short-run aggregate supply curve is upward sloping because the quantity supplied increases when the price rises. ... As a result, there is a positive correlation between the price level and output, which is shown on the short-run aggregate supply curve.

The short-run aggregate supply curve is upward-sloping because it takes some time for input prices and/or wages to adjust. ... When the aggregate demand curve shifts, there will be a short-run change in output, but no long-run shift in output. The price level will change in both the short run and the long run.

As the price level rises, supply increases as firms expand production to increase profits. And as price level falls, supply falls as firm reduce production. For this reason the short-run aggregate supply curve slopes upward.

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