Answer to Question #196429 in Macroeconomics for dorcas

Question

Oil price shocks have an evident impact on the short run aggregate supply curve. With the help of a graph demonstrate how rising oil prices affect the SRAS and explain what other factors can cause this shift.                                                                                                                                      

Answer 1

Increase in oil prices increase the cost of production of other goods where is an input.

This then decreases the output as it shifts the aggregate supply curve from AS₀ to AS₁ ^.

Other factors like change in quantity and quality of labor and capital leads to a shift in short run aggregate supply curve.