Chapter 26, Problem 1DQ

To determine

Causes of the outward right shift in AS curve in the economy.

Explanation of Solution

The equilibrium in the economy is obtained at the intersection of the aggregate demand and the aggregate supply curve in the economy. When there is a decrease in the price of foreign oil in the economy, then there will be an increase in the profitability of the firm as the cost of purchase of the foreign oil decreases whereas the domestic price level remains the same. When the profit increases in the economy, then there will be an increase in the output which means that there will be a rightward shift in the AS curve in the economy. When the AS curve shifts towards the right, then there will be a decline in the price level in the economy whereas an increase in the output level in the economy which are the consequences of the shift in the AS curve.

Economics Concept Introduction

Equilibrium: The equilibrium is the point where the aggregate demand of the economy becomes equal to the aggregate supply of the economy. At this point, there will be no excess demand or excess supply in the economy and supplied products and services will be completely consumed by the consumers.