Suppose an economy is initially in equilibrium and there is a sudden increase in oil prices.Which of the following is the most likely result?
A)Growth in real GDP
B)Price stability
C)Full employment output
D)Stagflation
E)Deflation

Question

Suppose an economy is initially in equilibrium and there is a sudden increase in oil prices.Which of the following is the most likely result?​
A)Growth in real GDP
B)Price stability
C)Full employment output
D)Stagflation
E)Deflation

Quizplus · Accepted Answer

A sudden increase in oil prices can lead to an increase in production costs, leading to a decrease in aggregate supply. This can result in a stagnant economy with high inflation rates, known as stagflation. Therefore, the most likely result is D.

Suppose an Economy Is Initially in Equilibrium and There Is