Recall Application 3, "How the U.S. Economy has Coped with Oil Price Fluctuations," to answer the following questions:
-According to the application, when the price of oil increases, the aggregate supply curve shifts up because:
A) oil is a by- product of the production processes in the economy.
B) oil is a complement to the production of most goods and services.
C) oil is an input to the production processes in the economy.
D) oil is a major source of export revenues in the economy.

Question

Quizplus · Accepted Answer

When the price of oil increases, the aggregate supply curve shifts up because oil is an input to the production processes in the economy. As the cost of producing goods and services that require oil as an input increases, the producers will offer less quantity of those goods and services at any given price, leading to a decrease in aggregate supply.