Macro Foundations · intro
What moves on the Aggregate Supply – Aggregate Demand diagram
Cheaper energy lowers production costs economy-wide, shifting SRASSRASShort-run aggregate supply: what firms produce at each price level while wages and input costs are still sticky. right.
Start at equilibriumequilibriumThe point where opposing forces balance, quantity supplied equals quantity demanded, so there's no pressure for price to change..
Energy prices fall sharply (supply glut or price war among producers).
Production costs fall across the economy. SRASSRASShort-run aggregate supply: what firms produce at each price level while wages and input costs are still sticky. shifts right.
New equilibriumequilibriumThe point where opposing forces balance, quantity supplied equals quantity demanded, so there's no pressure for price to change.: higher output and a lower price level, the mirror image of an oil shock.
Examiners ask this as: oil price collapse, energy prices fall, cheap oil, opec price war, energy glut.
Other scenarios on Aggregate Supply – Aggregate Demand