This week\'s topic is the impact of the increase in the supply of domestic natur

Question

This week's topic is the impact of the increase in the supply of domestic natural gas and oil from the fracking boom. The topic is NOT the pros and cons of fracking per se. So do not discuss that. Rather the purpose is to better understand the impact on the US Aggregate Supply from a higher supply of energy and the lower energy prices that follow an increase in the supply of energy. Since energy is an input into most all production and transportation, changes in energy prices ripple through the economy and impact prices in all sectors of the economy.

Explanation / Answer

Aggregate supply for an economy is also composed of the production functions of different forms. When the price of fuel crude oil or simply oil Falls this is considered as a reduction in the cost of production because fuel energy is the most important raw material in manufacturing and Other industries. When the cost of production Falls the aggregate supply increases because production is increased. Hence the short run aggregate supply function will shift to the right and this will reduce the price level in the economy and increase the real GDP for the nation.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.