Other things equal, if world oil prices increased by 70 percent then the most likely effect would be to:
A)shift the aggregate demand curve right.
B)shift the aggregate supply curve right.
C)shift the aggregate supply curve left.
D)shift the aggregate demand curve right and the aggregate supply curve left.

Question

Quizplus · Accepted Answer

An increase in world oil prices would lead to an increase in the cost of production for firms, which would cause a decrease in aggregate supply. This is because firms would need to spend more on inputs (like oil) to produce a given level of output. As a result, prices would increase and output would decrease, leading to a leftward shift in the aggregate supply curve. This would result in higher prices and lower output in the economy, which would not shift the aggregate demand curve. Therefore, the most likely effect of a 70 percent increase in world oil prices would be a shift in the aggregate supply curve to the left, as shown in the graph below.

![image.png](attachment:image.png)

Other Things Equal, If World Oil Prices Increased by 70