12.3 Shocks to the System
Refer to the information provided in Figure 12.3 below to answer the questions that follow. Figure 12.3
-Refer to Figure 12.3. Assume the economy is at Point A. Higher oil prices shift the aggregate supply curve to AS₂. If the government decides to counter the effects of higher oil prices by increasing net taxes, then the price level will be ________ than P₂ and output will be ________ than Y₂.

Question

12.3 Shocks to the System
Refer to the information provided in Figure 12.3 below to answer the questions that follow.

Figure 12.3
-Refer to Figure 12.3. Assume the economy is at Point A. Higher oil prices shift the aggregate supply curve to AS₂. If the government decides to counter the effects of higher oil prices by increasing net taxes, then the price level will be ________ than P₂ and output will be ________ than Y₂.

Quizplus · Accepted Answer

When the aggregate supply curve shifts to AS₂ due to higher oil prices, the economy moves from Point A to Point B, resulting in a higher price level (P₂) and lower output (Y₂). If the government counteracts this with an increase in net taxes, it will further decrease output and lower the price level. Therefore, the price level will be less than P₂ and output will be less than Y₂.