Suppose a war disrupts the supply of oil to the country. What would we expect to happen to the short-run aggregate-supply curve, the short-run Phillips curve, and the long-run Phillips curve?

Question

Quizplus · Accepted Answer

A disruption in the supply of oil would increase production costs, leading to a decrease in the short-run aggregate supply (shift left). This would also cause the short-run Phillips curve to shift right, indicating a higher inflation rate for any given level of unemployment. However, the long-run Phillips curve would remain unaffected because it is vertical, reflecting the natural rate of unemployment, which is not influenced by short-term supply shocks.

Suppose a War Disrupts the Supply of Oil to the Country