A temporary increase in the price of oil would
A) increase both short-run and long-run aggregate supply.
B) increase short-run aggregate supply and decrease long-run aggregate supply.
C) decrease short-run aggregate supply and leave long-run aggregate supply unchanged.
D) decrease both short-run and long-run aggregate supply.

Question

Quizplus · Accepted Answer

A temporary increase in the price of oil would lead to an increase in production costs for many firms, leading to a decrease in short-run aggregate supply. However, in the long-run, firms can adjust their production processes, find substitutes for oil, or develop new technologies, leading to a potential increase in long-run aggregate supply. Therefore, while short-run aggregate supply decreases, long-run aggregate supply may be left unchanged.

A Temporary Increase in the Price of Oil Would