In the short run, a decrease in the price of a major input such as oil will:
A) decrease the price level and increase the level of output.
B) increase the price level and increase the level of output.
C) decrease both the price level and the level of output.
D) increase the price level and decrease the level of output.

Question

Quizplus · Accepted Answer

A decrease in the price of a major input such as oil will decrease the cost of production, leading to a decrease in the price level and an increase in the level of output. This is because firms can now produce goods and services more cheaply and thus offer them at a lower price, leading to an increase in demand and output.

In the Short Run, a Decrease in the Price of a Major