A one-time increase in oil prices will cause a short-run
A)increase in the price level and in the level of current output.
B)increase in the price level and a short-run decrease in the level of current output.
C)decrease in the price level and in the level of current output.
D)decrease in the price level and a short-run increase in the level of current output.

Question

Quizplus · Accepted Answer

An increase in oil prices will increase the cost of production for firms, leading to a decrease in their profits. This will cause them to reduce production, leading to a decrease in the level of current output. However, the increase in production costs will also lead to an increase in prices, as firms pass on the higher costs to consumers. Therefore, there will be a short-run increase in the price level and a short-run decrease in the level of current output.

A One-Time Increase in Oil Prices Will Cause a Short-Run