The macroeconomic effect of an oil shock is to shift the _____ curve to the _____.
A) AD, right
B) AD, left
C) SRAS, right
D) SRAS, left
E) none of the above

Question

Quizplus · Accepted Answer

An oil shock increases the cost of production for firms, resulting in a decrease in aggregate supply (SRAS) and a shift to the left. This is because firms must spend more money on oil to produce the same amount of goods, and may need to reduce production if the cost of oil becomes too high. This shift in SRAS will lead to higher prices and lower output, unless there is a corresponding shift in AD to compensate.

The Macroeconomic Effect of an Oil Shock Is to Shift