An increase in oil prices will
A) shift the short-run aggregate supply curve up and to the left.
B) shift the short-run aggregate supply curve down and to the right.
C) cause a movement along the short-run aggregate supply curve.
D) not affect the short-run aggregate supply curve.

Question

Quizplus · Accepted Answer

An increase in oil prices will increase the cost of production for firms, leading to a decrease in profitability and a decrease in the quantity of output supplied in the short run. This will shift the short-run aggregate supply (SRAS) curve up and to the left. Conversely, a decrease in oil prices will shift the SRAS curve down and to the right, as firms will have lower production costs and higher profitability, leading to an increase in the quantity of output supplied in the short run.

An Increase in Oil Prices Will