In the early 2000s the European Central Bank warned that higher oil prices were a threat to economic growth. The Bank President called the higher prices "a sizeable adverse shock" to the economy. In terms of the AS/AD framework, this shock would be represented as a shift:

Question

Quizplus · Accepted Answer

Higher oil prices increase production costs for many goods and services, leading to a decrease in the overall supply of goods and services in the economy. This is represented in the Aggregate Supply and Demand (AS/AD) framework as an upward (or leftward) shift of the Aggregate Supply (AS) curve, indicating a reduction in the quantity of goods and services supplied at any given price level.

In the Early 2000s the European Central Bank Warned That