An increase in the price of oil ________ aggregate supply,shifting the aggregate supply curve ________ and potentially bringing the ________ phase of the business cycle.
A)increases;rightward;expansion
B)decreases;rightward;expansion
C)increases;rightward;recession
D)decreases;rightward;recession
E)decreases;leftward;recession

Question

Quizplus · Accepted Answer

An increase in the price of oil leads to an increase in production costs for firms, which decreases their profitability and results in a decrease in aggregate supply. This shift in aggregate supply is leftward, not rightward. Additionally, a decrease in aggregate supply can potentially bring the economy into a recessionary phase of the business cycle. Therefore, the correct choice is E, which states that the increase in oil prices decreases aggregate supply, shifts the curve leftward, and potentially brings a recessionary phase.

An Increase in the Price of Oil ________ Aggregate Supply,shifting