Which of the following represents the medium- run effects of an increase in the price of oil?
A) No change in the level of output.
B) No change in employment.
C) No change in the price level.
D) No change in the interest rate.
E) A decrease in the interest rate.

Question

Quizplus · Accepted Answer

In the medium-run, the increase in the price of oil will not change the price level as businesses have not yet adjusted their prices to respond to the increase in production costs. There may be some adjustments to output and employment levels, as businesses may need to cut back on production due to higher input costs, but these effects are not clearly identified in the given choices. There is also no clear link between an increase in oil prices and changes in the interest rate, so choices D and E can be eliminated.

Which of the Following Represents the Medium- Run Effects of an Increase