FIGURE 23-4
-Refer to Figure 23-4.Suppose the Canadian economy is initially in equilibrium at point A.An unexpected shock then shifts both the AD and the AS curves as shown and results in a new equilibrium represented by point B.Which of the following events could cause such a shock?
A)an increase in the net tax rate
B)a decrease in firms' desired investment expenditures
C)an increase in factor prices
D)a decrease in labour productivity
E)a decrease in the world price of oil

Question

FIGURE 23-4
-Refer to Figure 23-4.Suppose the Canadian economy is initially in equilibrium at point A.An unexpected shock then shifts both the AD and the AS curves as shown and results in a new equilibrium represented by point B.Which of the following events could cause such a shock?
A)an increase in the net tax rate 
B)a decrease in firms' desired investment expenditures 
C)an increase in factor prices 
D)a decrease in labour productivity 
E)a decrease in the world price of oil

Quizplus · Accepted Answer

A decrease in the world price of oil would cause a leftward shift in the AS curve, as it would reduce production costs for firms and increase their willingness to supply output at any given price level. At the same time, it would also increase aggregate demand, as lower oil prices would increase consumers' real income and stimulate spending. As both curves shift leftward, the equilibrium output and price level would decline, leading to a new equilibrium represented by point B. The other choices would not directly affect either curve or would have an ambiguous effect on output and prices.

FIGURE 23-4 -Refer to Figure 23-4.Suppose the Canadian Economy Is Initially in Initially