Final answer:
As we move up along the short-run aggregate supply curve, potential GDP stays constant while money wage rates and other resource prices may change, reflecting a short-run scenario. In the long run, the economy returns to potential GDP with flexible wages and prices, according to neoclassical theory.
Step-by-step explanation:
When we move up along the short-run aggregate supply curve, potential GDP remains constant, but the money wage rate and the prices of other resources do change. The short-run aggregate supply curve represents the relationship between the price level and the quantity of goods and services that firms are willing to produce, holding the availability of inputs constant. However, in the short term, as output increases and the economy experiences higher demand for labor, wages will eventually rise leading to shifts in the short-run aggregate supply curve. This phenomenon reflects the Keynesian perspective that in the short run, wages and prices can be sticky, requiring some time to adjust. However, according to the neoclassical perspective on long-run aggregate supply, when wages and prices are flexible, the economy eventually returns to its potential GDP. This adjustment process may take time, and during this time, there could be periods of increased unemployment that exert a downward pressure on wages, causing a shift in the short-run aggregate supply curve. In the long run, the economy reaches a new equilibrium, with the level of real GDP returning to potential GDP, and the price level reflecting the changes in aggregate demand.