What are some factors which would cause a shift in either aggregate supply or aggregate demand?...

What are some factors which would cause a shift in either aggregate supply or aggregate demand? If our oil suppliers suddenly stopped selling oil to the U.S., which curve would shift? What would then happen to our economy? Neat handwriting if written please.

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Expert Solution

Answer : The shifting of aggregate supply curve depends mainly on two factors : (i) production cost; and (ii) economic growth. Here production cost include input price, tax and subsidies. If any of these factors change then the aggregate supply change. If any of these factors decrease remaining other factors as constant then the aggregate supply decrease which shift the aggregate supply curve to leftward. Similarly, if any of these factors increase remaining other factors as constant then the aggregate supply increase which shift the aggregate supply curve to rightward.

Shifting of aggregate demand curve depends on four factors : (i) consumption spending; (ii) investment spending; (iii) government spending; and (iv) net export (export - import). If any of these factors change then the aggregate demand change. If any of these factors decrease remaining other factors as constant then the aggregate demand decrease which shift the aggregate demand curve to leftward. Similarly, if any of these factors increase remaining other factors as constant then the aggregate demand increase which shift the aggregate demand curve to rightward.

If in U.S. the selling of oil is stop then the aggregate supply decrease. Due to decrease in aggregate supply the aggregate supply curve shift to leftward. So, if in U.S. the selling of oil is stop then the aggregate supply curve shift. As a result, the price level rise the real GDP decrease in the economy. Due to higher price level the value of U.S. currency fall which lead to increase export and decrease import. This will lead to increase the economic growth in long-run.

Rahul Sunny answered 9 months ago

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