By itself,an increase in the price of oil shifts the
A)aggregate supply curve leftward and does not shift the aggregate demand curve.
B)aggregate supply curve rightward and does not shift the aggregate demand curve.
C)aggregate demand curve leftward and does not shift the aggregate supply curve.
D)aggregate demand curve rightward and does not shift the aggregate supply curve.
E)aggregate demand curve rightward and shifts the potential GDP line rightward.

Question

Quizplus · Accepted Answer

An increase in the price of oil leads to an increase in the cost of production of goods and services, reducing the profitability of firms. As a result, firms would reduce their production, leading to a leftward shift in the aggregate supply curve. However, there is no direct effect of an increase in oil prices on the aggregate demand curve.

By Itself,an Increase in the Price of Oil Shifts the