Question

Suppose OPEC members met and decided to increase their oil production (and thus lower prices) for six months. This change will cause many firms' input prices in the U.S. to __________. This change in input prices will cause a _____________ aggregate supply curve.

Answer 1

Suppose OPEC members met and decided to increase their oil production (and thus lower prices) for six months. This change will cause many firms' input prices in the U.S.A to decrease. This change in input prices will cause a shift in the aggregate supply curve.

Step-by-step explanation:

An aggregate supply curve shows the quantity of all the goods and services that businesses in an economy will sell at a particular price level. In the long run, the aggregate supply curve is vertical, but the aggregate supply curve will be upward sloping in the short run.

An increase in aggregate supply due to a decrease in input prices is represented by a shift to the right of the SAS curve.

Economic Growth is another factor that causes the aggregate supply curve to shift. Positive economic growth results from an increase in productive resources, such as labour and capital. Consequently, if the short-run curve shifts to the right the price level decreases and the GDP increases. When the curve shifts to the left, the price level increases and the GDP decreases.

Answer 2

This change will cause many firms' input prices in the U.S. to DECREASE. This change in input prices will cause a SHIFT IN THE SHORT RUN aggregate supply curve.

Step-by-step explanation:

A reduction in the price of a key input like oil will result in a reduction (at least temporary) of the general price level of production inputs. Oil prices affect not only gasoline, but plastics and indirectly basically every product sold. This reduction in input prices will shift the short run aggregate supply curve to the right, increasing total output and decreasing the general level of prices (inflation).