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 decrease in the costs of production for firms, resulting in a decrease in the overall price level (shifting the AS curve to the right) and an increase in the level of output (shifting the AD curve to the right), leading to a new equilibrium at point B.