Question

tive expectations hold, this will suppose an economy is hit with a positive oil price shock in one period that raises the level of oil prices permanently. if adaptive expectations hold, this will shift the as curve up initially and then shift the as curve back to original position in the following period. shift the as curve up initially and gradually shift the as curve back to original position over time. shift the as curve up permanently. shift the as curve down permanently.

Answer 1

The economy is hit with a positive oil price shock in one period that raises the level of oil prices permanently. if adaptive expectations hold, this wil shift the AS curve up initially and then shift the AS curve back to original position in the following period.

What is the AS curve?

The aggregate supply curve describes the amount of real GDP that  the economy supplies at different price levels. The reasoning used to construct the aggregate supply curve is different from the reasoning used to construct the supply curves of individual goods and services. The supply curve for a single good is constructed under the assumption that the prices of production inputs remain unchanged. If the price of good X rises, the unit cost for sellers to supply good X does not change,  so sellers are willing to supply more of good X - so the supply curve for good X shifts upward. However, the aggregate supply curve is determined based on the price level. An increase in the price level increases the price  producers receive for their output and thus increases production.

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