Question

Explain how each of the following events affects the AS curve. a. The Fed increases the money supply. Aggregate supply is unchanged Aggregate supply shifts to the left Aggregate supply shifts to the right b. Oil prices drop sharply. Aggregate demand shifts to the right Aggregate demand shifts to the left Aggregate supply shifts to the right Aggregate supply shifts to the left

Answer 1

Answer:

A) When the Feds increase money supply, Aggregate supply shifts to the right.

B) When oil prices drop sharply, Aggregate demand shifts to the right

Explanation:

When Fed increases the money supply,  aggregate supply shifts to the right.

This is one of the activity in the open market operation used by government to control the supply of money.

The Fed uses its tools to control the supply of money to help stabilize the economy. When the economy is slumping, the Fed increases the supply of money to spur growth.

And when oil prices drop sharply,  Aggregate demand shifts to the right as an indicator of increase in consumption.

Oil price drop will reduce energy bill and raise consumers' real income which leads to an increase in aggregate demand.