An increase in the price of oil will likely cause which of the following?

Question

Quizplus · Accepted Answer

An increase in the price of oil can lead to higher production costs across many industries, which can reduce the natural level of output as firms produce less due to higher costs (D). This can also lead to an increase in the natural rate of unemployment (A) as firms may hire less due to decreased production. In the context of the Phillips curve, which describes the inverse relationship between the rate of inflation and the rate of unemployment, an increase in oil prices can lead to higher inflation, which can be represented as an increase in the markup (m) and other factors (z) that shift the Phillips curve (B, C). Thus, all of the given effects (A, B, C, D) are likely consequences of an increase in the price of oil.

An Increase in the Price of Oil Will Likely Cause