Suppose an increase in world oil prices leads to an increase in Canadian aggregate demand but no change in Canadian aggregate supply.The short-term effect on the Canadian price level would be called

Question

Quizplus · Accepted Answer

An increase in world oil prices would lead to an increase in the cost of production for many goods and services in Canada, leading to an increase in prices, which is known as demand inflation. This is a short-term effect as in the long run, Canadian suppliers may adjust their production methods, leading to an increase in aggregate supply, and potentially offsetting the increase in prices. Monetary validation and monetary transmission refer to the effects of changes in the money supply on the economy, while a supply shock refers to a sudden change in aggregate supply, and an adjustment process is a general term that could refer to any kind of economic adjustment.

Suppose an Increase in World Oil Prices Leads to an Increase