Assume the economy is at long run equilibrium and oil prices rise. As a result, the ____________ shifts____________

Question

Quizplus · Accepted Answer

An increase in oil prices is a supply-side shock that increases the cost of production. Therefore, the short-run aggregate supply (SAS) curve shifts leftward, causing a decrease in output and an increase in the price level. The AD curve does not shift because there is no change in consumer or investor confidence, government policies or foreign trade.

Assume the Economy Is at Long Run Equilibrium and Oil