Explain the impact that a rise in the world price of oil might have on aggregate supply and gross domestic product (GDP) in an economy

Aggregate Supply is the total quantity of goods and services produced in an economy over time. In the neo-classical AD-AS model, the short-run aggregate supply (SRAS; total quantity of goods and services produced in an economy given that wages are fixed) is an upward sloping curve. Since oil is a factor of production (involved not only in the production of goods and service but also involved in their transportation), an increase in the world price will increase the costs of production for all producers that use oil in their production processes. Therefore, (short-run) aggregate supply will decrease, causing a leftward shift in the curve. As a result, the the GDP in the economy will decrease as overall high costs of production means that an economy is no longer able to produce as many goods and services as it could before the price shock.