Which effect is likely to occur when oil prices fall?

a. Aggregate demand shifts left, the price level falls, and real output falls.

b. Aggregate demand shifts right, the price level rises, and real output rises.

c. Aggregate supply shifts right, the price level falls, and real output rises.

d. Aggregate supply shifts left, the price level rises, and real output falls.

Solutions

Expert Solution

Ans. c. Aggregate supply shifts right, the price level falls, and real output rises.

Oil prices fall termed as a positive supply shock because it leads to lower transportation and inputs cost in a nation. Aggregate supply will increase and aggregate supply curve shifts downward. At the equilibrium level, the price level falls and real output rises.

Rahul Sunny answered 1 year ago

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