]Which of the following describes what would happen after a positive supply shock such as a decrease in world oil prices?
A) An upward shift of the aggregate supply curve as unit costs increase,followed by a gradual decrease in the wage as employment decreases,leading to a downward shift of the aggregate supply curve.
B) A downward shift of the aggregate supply curve as unit costs decrease,followed by a gradual increase in the wage as employment increases,leading to an upward shift of the aggregate supply curve.
C) An upward shift of the aggregate supply curve as unit costs increase,followed by a gradual decrease in the wage as employment decreases,leading to an upward shift of the aggregate supply curve.
D) A downward shift of the aggregate supply curve as unit costs decrease,followed by a gradual decrease in the wage as employment decreases,leading to a downward shift of the aggregate supply curve.
E) An upward shift of the aggregate demand curve.

Question

Quizplus · Accepted Answer

A positive supply shock, such as a decrease in world oil prices, would lead to a decrease in unit costs for firms. This would cause a downward shift in the aggregate supply curve. As costs decrease, firms would be able to produce at lower prices and potentially increase employment, which would lead to an increase in wages. This gradual increase in wages would lead to an upward shift in the aggregate supply curve. Therefore, the correct answer is B.

]Which of the Following Describes What Would Happen After a Positive