Question

For each of the following scenarios, determine the effect on aggregate supply. a. There is an unexpected decrease in oil prices. This causes: multiple choice 1 a decrease in aggregate supply, shifting the aggregate supply curve to the left. an increase in aggregate supply, shifting the aggregate supply curve to the right. a movement along the aggregate supply curve to the right, indicating an increase in the quantity of real GDP supplied. a movement along the aggregate supply curve to the left, indicating a decrease in the quantity of real GDP supplied. b. The government increases the amount that all producers are required to contribute to health insurance coverage. This causes: multiple choice 2 a movement along the aggregate supply curve to the right, indicating an increase in the quantity of real GDP supplied. a decrease in aggregate supply, shifting the aggregate supply curve to the left. a movement along the aggregate supply curve to the left, indicating a decrease in the quantity of real GDP supplied. an increase in aggregate supply, shifting the aggregate supply curve to the right.

Answer 1

a. an increase in aggregate supply, shifting the aggregate supply curve to the right.

b. a decrease in aggregate supply, shifting the aggregate supply curve to the left.

Step-by-step explanation:

If there is a decrease in oil price, it would mean that producers are able to source oil at a cheaper rate. Oil is a major contributor to world economy whether indirectly or directly and if it is cheaper to source, production would increase as it would be cheaper to do so. Aggregate supply would therefore increase and the curve will be shifted to the right.

If the government increases the amount that all producers should contribute to health insurance, it would mean that labor is now more expensive. Labor is a major input in production so increasing its cost would make production more expensive. Producers would therefore hire less people and produce less to maintain profitability. Aggregate supply will therefore decrease and shift left.