If oil prices decline, the short-run aggregate supply curve shifts _____ and output supplied will _____.
A) left; increase
B) left; decrease
C) right; increase
D) right; decrease

Question

Quizplus · Accepted Answer

When oil prices decline, production costs for many firms decrease, leading to an increase in profitability and a decrease in costs of production. This allows firms to increase their supply of output at every price level, shifting the short-run aggregate supply curve to the right. As a result, output supplied will increase.

If Oil Prices Decline, the Short-Run Aggregate Supply Curve Shifts