For each of the following scenarios, determine the effect on aggregate supply. a

Question

For each of the following scenarios, determine the effect on aggregate supply.

a. There is an unexpected decrease in oil prices.

b. Suppose the government increases the amount that all producers are required to contribute to health insurance coverage.

This will cause an increase in aggregate supply, shifting the aggregate supply curve to the right.

This will cause a decrease in aggregate supply, shifting the aggregate supply curve to the left. This will cause a movement along the aggregate supply curve to the right, showing an increase in the quantity of real GDP supplied. This will cause an increase in aggregate supply, shifting the aggregate supply curve to the right. This will cause a movement along the aggregate supply curve to the left, showing a decrease in the quantity of real GDP supplied.

Explanation / Answer

For each of the following scenarios, determine the effect on aggregate supply:

a. There is an unexpected decrease in oil prices:

* This will cause a decrease in aggregate supply, shifting the aggregate supply curve to the left.

b. Suppose the government increases the amount that all producers are required to contribute to health insurance coverage.

* This will cause a movement along the aggregate supply curve to the left, showing a decrease in the quantity of real GDP supplied.

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