What would be the effect on short-run aggregate supply of a large,permanent reduction in the world supply of oil?
A)It would shift left (an increase in short-run aggregate supply).
B)It would shift left (a decrease in short-run aggregate supply).
C)It would shift right (a decrease in short-run aggregate supply).
D)It would shift right (an increase in short-run aggregate supply).

Question

Quizplus · Accepted Answer

A permanent reduction in the world supply of oil would lead to an increase in the cost of production, as it is a crucial input in many industries. This increase in costs would cause a decrease in short-run aggregate supply, meaning that the supply curve would shift to the left. Therefore, Option B is the correct answer.

What Would Be the Effect on Short-Run Aggregate Supply of a Large,permanent