A decline in the price of a key input like oil will shift the Aggregate Supply Curve to the right, providing an incentive for more to be produced at every given price level for outputs. From 1985 to 1986, for example, the average price of crude oil fell by almost half, from $24 a barrel to $12 a barrel. Similarly, from in 2001, the price of a barrel of crude oil dropped from 25%.
In both cases, the decreasing price of oil led to a situation where the outward shift of Aggregate Supply Curve to the right allowed the economy to expand, unemployment to fall, and inflation to decline.
The lesson is that lower prices for inputs cause Aggregate Supply Curve to shift to the right, while higher prices cause it to shift back to the left.
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