Suppose an economy is initially in equilibrium and there is a sudden increase in oil prices. Which of the following is the most likely result?
A) a growth in real GDP
B) price stability
C) full employment output
D) stagflation
E) deflation

Question

Quizplus · Accepted Answer

A sudden increase in oil prices will increase the cost of production for businesses, which can cause a decrease in aggregate supply. This decrease in aggregate supply can lead to a situation called stagflation, which is a combination of high inflation and unemployment. Therefore, option D is the most likely result.

Suppose an Economy Is Initially in Equilibrium and There Is