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Exhibit: Economic Growth, AD and AS Analysis
-(Exhibit: Economic Growth, AD and AS Analysis) Assume that the economy is initially in long-run equilibrium. If oil prices in the economy increased dramatically and remained high for so long that most of the industries in the economy had to significantly form new capital and retool much of its existing capital, the economy would suffer. In this event,

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Use the following to answer questions .
Exhibit: Economic Growth, AD and AS Analysis 
-(Exhibit: Economic Growth, AD and AS Analysis) Assume that the economy is initially in long-run equilibrium. If oil prices in the economy increased dramatically and remained high for so long that most of the industries in the economy had to significantly form new capital and retool much of its existing capital, the economy would suffer. In this event,

Quizplus · Accepted Answer

An increase in oil prices would cause an increase in production costs for industries relying heavily on oil. This would shift both the long-run aggregate supply and short-run aggregate supply curves left, reducing the future industrial capacity and prospects for economic growth. The aggregate demand curve may also shift left as consumers may have less disposable income to spend on goods and services due to higher oil prices. However, this is a secondary effect and not the primary cause of the GDP decrease. Therefore, options B, C, and D are incorrect.

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