Suppose that political instability in the Middle East interrupts the supply of oil. The _____ curve shifts _____, output _____, and prices _____.
A) short-run aggregate supply; right; increases; decrease
B) short-run aggregate supply; left; decreases; increase
C) aggregate demand; left; decreases; decrease
D) aggregate demand; right; increases; increase

Question

Quizplus · Accepted Answer

When there is political instability in the Middle East, the supply of oil is interrupted, leading to a decrease in the short-run aggregate supply curve. This causes a decrease in output and an increase in prices. Therefore, the correct answer is option B, where the short-run aggregate supply curve shifts to the left, output decreases, and prices increase. The other options are incorrect because they either refer to the aggregate demand curve, which does not directly affect the supply of oil, or they suggest an increase in output, which contradicts the fact that the supply of oil has been interrupted.

Suppose That Political Instability in the Middle East Interrupts the Supply