A significant 'shock' to the economy such as the oil price hikes of the 1970s can be represented by:
A) a left shift of the AS curve
B) a right shift of the AD curve
C) a left shift of the AD curve
D) a right shift of the AS curve

Question

Quizplus · Accepted Answer

A significant shock to the economy such as the oil price hikes of the 1970s would result in a leftward shift of the aggregate supply (AS) curve. This is because these price increases would cause an increase in production costs leading to higher prices, lower output, and higher unemployment levels. A leftward shift of the AS curve represents a reduction in potential output levels and an increase in the general price level.

A Significant 'Shock' to the Economy Such as the Oil