The 1973 oil shocks created
A) demand-pull inflation.
B) cost-push inflation.
C) a shift to the right of the aggregate supply curve.
D) a shift to the right of the aggregate demand curve.

Question

Quizplus · Accepted Answer

The 1973 oil shocks caused a significant increase in the cost of production for businesses, which led to cost-push inflation. The increase in oil prices raised the costs of production for firms, which led to a decrease in aggregate supply and caused inflationary pressures on the economy. The oil price increase did not cause an increase in demand, so choices A and D are incorrect. A shift to the right of the aggregate supply curve would suggest an increase in production capacity, which is not what occurred during the oil shocks, so choice C is also incorrect.

The 1973 Oil Shocks Created