Question

5) 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.

Answer 1

Price? AS Pi ما Po Qu'antity As is upward sloping indicating there is a positive relationships between price devel and quantity cupplied. -> quantity supplied increases. as price increases from Po to P, → quantity supplied increases foom Qo to Qr. • lower poice level means, lower quantity supply and hence ASP ↑ lower profit money wage rate increases, fimm will demand low labour. Hence, Option (b) is correct.