In 2005,Hurricane Katrina destroyed oil and natural gas refining capacity in the Gulf of Mexico which subsequently drove up natural gas,gasoline,and heating oil prices.Three years later,once the refining capacity was restored,these prices came back down.The restoration of refining capacity should
A)shift the short-run aggregate supply curve to the left.
B)shift the short-run aggregate supply curve to the right.
C)move the economy up along a stationary short-run aggregate supply curve.
D)move the economy down along a stationary short-run aggregate supply curve.

Question

Quizplus · Accepted Answer

The restoration of refining capacity increases the production capacity of the economy, which shifts the short-run aggregate supply curve to the right. This leads to lower prices and higher output levels.

In 2005,Hurricane Katrina Destroyed Oil and Natural Gas Refining Capacity