The short-run effect of an oil price increase is
A)an upward shift of the inflation adjustment line and a leftward shift of the aggregate demand curve as the Fed raises interest rates.
B)an upward shift of the inflation adjustment line and a leftward shift of the aggregate demand curve as the Fed lowers the target inflation rate.
C)an upward shift of the inflation adjustment line and a leftward shift of the aggregate demand curve as spending falls.
D)a downward shift of the inflation adjustment line.
E)an upward shift of the inflation adjustment line.

Question

Quizplus · Accepted Answer

An oil price increase typically leads to higher production costs, causing an upward shift in the inflation adjustment line as firms pass on higher costs to consumers, leading to increased inflation.

The Short-Run Effect of an Oil Price Increase Is