Which of the following is likely to occur if OPEC increases the amount of oil it supplies and domestic energy prices fall,ceteris paribus?
A) Aggregate supply will decrease or shift to the left.
B) Aggregate supply will increase or shift to the right.
C) Aggregate demand will increase or shift to the right.
D) Aggregate demand will decrease or shift to the left.

Question

Quizplus · Accepted Answer

If OPEC increases the amount of oil it supplies and domestic energy prices fall, it will lead to a decrease in production costs for firms because the cost of energy is one of the factors of production. The decrease in production costs will lead to an increase in aggregate supply or shift the aggregate supply curve to the right. As a result of the increase in aggregate supply, the equilibrium price level will decrease, while the equilibrium quantity of output will increase.

Which of the Following Is Likely to Occur If OPEC