An increase in the price of a resource such as oil
I. shifts the aggregate demand curve leftward.
II. shifts the long-run aggregate supply curve rightward.
III. shifts the short-run aggregate supply curve leftward.
IV. increases the price level and decreases real GDP in the short run.
A) Only I is correct.
B) Both I and II are correct.
C) Only III is correct.
D) Both III and IV are correct.

Question

Quizplus · Accepted Answer

III and IV are correct because an increase in the price of a resource like oil typically makes production more expensive, which decreases the quantity of goods and services supplied in the short run (shifting the short-run aggregate supply curve leftward). This shift can lead to higher prices and lower output in the short run, increasing the price level and decreasing real GDP.

An Increase in the Price of a Resource Such as Oil