Question

The aggregate supply curve (short-run) slopes upward and to the right because _______.

1) The price level increases as real GDP increases
2) Firms are willing to produce more output at higher prices
3) The cost of production decreases as real GDP increases
4) The government increases spending and stimulates economic growth

Answer 1

The short-run aggregate supply curve slopes upward as firms increase production in response to higher prices for outputs, while costs of inputs remain constant. Option 2, 1.

Step-by-step explanation:

The short-run aggregate supply curve (AS) slopes upward and to the right because firms are willing to produce more output at higher prices, which is options 2 and 1 respectively.

This phenomenon occurs as the price level for outputs rises, while the price of inputs remains fixed, creating an incentive for firms to produce more due to the prospect of earning higher profits.

Moreover, the potential GDP line demarcates the maximum that an economy can produce with full employment of workers and physical capital.

Option 1, 2.