Figure 35-9.The left-hand graph shows a short-run aggregate-supply (SRAS)curve and two aggregate-demand (AD)curves.On the right-hand diagram,"Inf Rate" means "Inflation Rate." -Refer to Figure 35-9.A significant increase in the world price of oil could explain A)the shift of the aggregate-supply curve from AS₁ to AS₂,but it could not explain the shift of the Phillips curve from PC₁ to PC₂. B)the shift of the Phillips curve from PC₁ to PC₂,but it could not explain the shift of the aggregate-supply curve from AS₁ to AS₂. C)both the shift of the aggregate-supply curve from AS₁ to AS₂ and the shift of the Phillips curve from PC₁ to PC₂. D)neither the shift of the aggregate-supply curve from AS₁ to AS₂ nor the shift of the Phillips curve from PC₁ to PC₂.

Question

Quizplus · Accepted Answer

A significant increase in the world price of oil would cause a shift in the short-run aggregate-supply (SRAS) curve from AS₁ to AS₂ due to higher production costs for firms. This increase in production costs would also cause a shift of the Phillips curve from PC₁ to PC₂, as higher costs would lead to higher inflation rates for a given level of unemployment. Therefore, both shifts can be explained by a significant increase in the world price of oil.