Figure 9.6
-Refer to Figure 9.6. Suppose the equilibrium is at point A. An oil embargo which raises the price of oil would move the equilibrium to:
A) point D.
B) point H.
C) point E.
D) point F.

Question

Figure 9.6
-Refer to Figure 9.6. Suppose the equilibrium is at point A. An oil embargo which raises the price of oil would move the equilibrium to:
A) point D. 
B) point H. 
C) point E. 
D) point F.

Quizplus · Accepted Answer

An oil embargo would increase the cost of production, causing a leftward shift of the aggregate supply curve from AS1 to AS2. This will result in a new equilibrium point at E with lower output and higher price level than the original equilibrium at A. Points D and F are both to the left of the original equilibrium point, so they are not possible new equilibria. Point H is to the right of the original equilibrium point, so it is not affected by the leftward shift of the aggregate supply curve.

Figure 9.6 -Refer to Figure 9.6. Suppose the Equilibrium Is at Point