Refer to the following figure to answer the next questions.

-Based on the figure, starting at point A, if there is an increase in the price of oil, then in the short run we move to point ________ and in the long run to point ________.
A) F; E
B) F; A
C) D; C
D) D; A
E) B; E

Question

Refer to the following figure to answer the next questions.
 
-Based on the figure, starting at point A, if there is an increase in the price of oil, then in the short run we move to point ________ and in the long run to point ________.
A) F; E 
B) F; A 
C) D; C 
D) D; A 
E) B; E

Quizplus · Accepted Answer

Starting at point A, an increase in the price of oil leads to an increase in costs, which shifts the short-run aggregate supply curve (SRAS) to the left. This movement takes the economy to point F in the short run. However, eventually, firms will adjust their prices and the long-run aggregate supply curve (LRAS) will shift to the left to reflect the higher costs of production. This takes the economy to point A in the long run. Therefore, the correct answer is B, as it indicates that the economy moves to point F in the short run and then back to point A in the long run.

Refer to the Following Figure to Answer the Next Questions