An increase in the price of foreign oil can shift the economy's aggregate supply curve _____ resulting in inflation.

Question

Quizplus · Accepted Answer

An increase in the price of foreign oil will increase production costs for firms, which will cause the short-run aggregate supply curve to shift inward. This is because the higher production costs will lead to a decrease in the quantity of goods and services that firms are willing and able to supply at any given price level. As a result, the economy will experience both higher inflation and lower real output in the short run.

An Increase in the Price of Foreign Oil Can Shift