By itself, an increase in the price of oil shifts the
A) aggregate demand curve leftward and does not shift the short- run aggregate supply curve.
B) short- run aggregate supply curve leftward and does not shift the aggregate demand curve.
C) short- run aggregate supply curve rightward and does not shift the aggregate demand curve.
D) aggregate demand curve rightward and does not shift the short- run aggregate supply curve.

Question

Quizplus · Accepted Answer

An increase in the price of oil would increase production costs for firms, causing a leftward shift in the short-run aggregate supply (SRAS) curve. This is because firms will have to spend more to produce the same amount of output. However, it would not shift the aggregate demand (AD) curve directly as that is determined by factors such as consumer spending, investment, and government spending.

By Itself, an Increase in the Price of Oil Shifts