A temporary decrease in the price of oil is a:
A) short-run supply shock.
B) long-run supply shock.
C) demand shock.
D) The changing price of oil would not influence aggregate demand or supply.

Question

Quizplus · Accepted Answer

A temporary decrease in the price of oil is a short-run supply shock because it affects the cost of production for firms, leading to an increase in short-run aggregate supply (SRAS), thus causing a shift of the SRAS curve to the right. This results in lower price levels and higher output in the short run. However, in the long run, the supply shock is absorbed, and the economy returns to its natural level of output.

A Temporary Decrease in the Price of Oil Is A