An oil price decrease would
A) increase aggregate demand.
B) decrease short-run aggregate supply.
C) decrease aggregate demand.
D) increase short-run aggregate supply.

Question

Quizplus · Accepted Answer

A decrease in oil prices will lower production costs for businesses, leading to an increase in short-run aggregate supply. This is because the cost of inputs, such as oil, is a major determinant of production costs, so a decrease in oil prices will result in lower production costs and therefore an increase in output.

An Oil Price Decrease Would