Which of the following changes best represents the effect of the oil embargo (a shut-off of oil from certain OPEC countries) of the 1970s on the U.S. economy?
A) a leftward shift of the long-run aggregate supply curve
B) a rightward shift of the long-run aggregate supply curve
C) a leftward shift of the aggregate demand curve
D) a rightward shift of the aggregate demand curve
E) a downward movement along a given aggregate demand curve

Question

Quizplus · Accepted Answer

The oil embargo of the 1970s led to a decrease in the availability of oil, a critical input for production, which increased production costs and reduced the economy's capacity to produce goods and services. This is represented by a leftward shift of the long-run aggregate supply curve, indicating a decrease in potential output at any given price level.

Which of the Following Changes Best Represents the Effect of the Oil