Recall the Application about oil price fluctuations in the U.S. economy to answer the following
question(s). During the 1970s, the world economy was hit with a series of supply shocks which impacted
the prices of oil and many agricultural commodities. Since the United States is a net importer of oil, the
changes in oil prices also had an impact on aggregate demand. During the 1990s, the world economy
experienced favorable supply shocks in the oil market, but in 2008, world oil prices skyrocketed to $145 a
barrel before falling again in 2009 and 2010.
-According to this Application, during the 1970s, the world economy experienced an increase in oil prices and a decrease in output, which would be the typical results of
A)a favorable supply shock.
B)a favorable demand shock.
C)an adverse supply shock.
D)an adverse demand shock.

Question

Quizplus · Accepted Answer

An adverse supply shock typically leads to higher prices and lower output, as seen in the 1970s with increased oil prices and decreased economic output.

Recall the Application About Oil Price Fluctuations in the U