Question

29.An increase in oil prices to a country that is a net importer of oil shifts ek. both the short-run aggregate supply and long-run el. both the short-run aggregate supply and long-run em. the short-run aggregate supply curve leftward but leaves en. the long-run aggregate supply curve rightward but leaves eo. the short-run aggregate supply curve leftward but shifts aggregate supply curves rightward. aggregate supply curves leftward. the long-run aggregate supply curve unchanged. the short-run aggregate supply curve unchanged. the long-run aggregate supply curve rightward.

Answer 1

The following diagram shows the short run aggregate supply (SRAS) curve and LRAS.

SAS Price PriceA short-run aggregate supply curve LAS A long-run aggregate supply curve level level Real GDP Natural level of real GDP Real GDP (ai) SI Figure 1 The aggregate supply curve

In the long run, aggregate supply curve is vertical since all factors of production are allowed to vary in the long run and the economy would be using optimality, thus long-run aggregate supply curve is static because it is the lowest aggregate supply curve.

If the prices of oil increase for a country which is net importer of oil, it would demand the less of it (by law of demand). Thus, the short run supply would be affected in the market and SRAS will shift to the left. However in the long run, as stated by above reasoning, all factors would vary and using optimality conditions, LRAS remains unchanged.

LRAS SRAS2 Price Level SRAS1 2t AD Output

Hence correct Ans - C