Question

Because fluctuations in the world oil price make the U.S.​ short-run macroeconomic equilibrium​ fluctuate, someone suggests that the government should vary the tax rate on​ oil, lowering the tax when the world oil price rises and increasing the tax when the world oil price​ falls, to stablize the oil price in the U.S. market.
If this suggestion is​ implemented, when the world price of oil​ ______, aggregate supply would​ ______.

Answer 1

Decreases, decrease.