A one-time increase in the price of oil followed by a one-time increase in aggregate demand produce
A) a one-time increase in the price level.
B) continuing cost-push inflation.
C) a one-time decrease in the price level.
D) continuing demand-pull inflation.

Question

Quizplus · Accepted Answer

A one-time increase in the price of oil will cause a short-term shock to the economy, increasing the cost of production for firms and leading to a decrease in supply. This will cause a temporary increase in the price level. However, if there is also a one-time increase in aggregate demand, this will increase demand and can further drive up prices. However, this will not necessarily lead to continuing inflation as it is a one-time increase in demand.

A One-Time Increase in the Price of Oil Followed by a One-Time