Which of the Following Best Describes Why the Aggregate Supply

question 73

Multiple Choice

Which of the following best describes why the aggregate supply curve slopes upward?

• A) When actual output exceeds potential, firms struggle to keep production in line with the high demand. Firms therefore raise their prices by more than the usual amount in an attempt to cover increased production costs.
• B) When actual output exceeds potential, firms have an easy time keeping production in line with the high demand. Firms therefore lower their prices by more than the usual amount in an attempt to cover increased production costs.
• C) When actual output exceeds potential, firms struggle to keep production in line with the high demand. Firms therefore lower their prices with decreased production costs.
• D) When actual output falls below potential, firms easily keep production in line with the high demand. Firms therefore raise their prices by more than the usual amount in an attempt to cover increased production costs.
• E) None of these answers are correct.

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Definitions:

Fiscal Policy

Government strategies involving taxation and spending to influence the economy, aiming at achieving economic stability and growth.

Federal Budget

An annual financial statement presenting the government's proposed revenues and spending for the upcoming fiscal year.

Automatic Stabilizers

Economic policies and programs designed to offset fluctuations in a nation's economic activity without additional government intervention.

Recession

A noticeable drop in economic activity that affects the entire economy, enduring beyond several months, usually evidenced in real GDP, real income, employment, industrial production, and wholesale-retail sales.