(Figure: Shifting the AD and SRAS) Starting in long-run equilibrium when the aggregate demand curve is AD₀ and the short-run aggregate supply curve is SRAS₀,if there is a supply shock,such as a drastic increase in the price of oil,this will cause _____ and a movement to a short-run equilibrium at point _____.

Question

Quizplus · Accepted Answer

A supply shock, such as a drastic increase in the price of oil, will cause a decrease in short-run aggregate supply (shift leftward) from SRAS₀ to SRAS₂. This will result in a movement to a short-run equilibrium at point a, which is to the left of the initial equilibrium point. Therefore, the correct choice is D, which represents a leftward shift in the short-run aggregate supply curve from SRAS₀ to SRAS₂. The other choices do not correctly reflect the impact of a supply shock on the AD and SRAS curves.

(Figure: Shifting the AD and SRAS) Starting in Long-Run