What impact did the soaring oil prices of 2007 and the first half of 2008 have on the economy?
A) They increased SRAS, causing real output and employment to increase.
B) They reduced SRAS, causing real output and employment to increase.
C) They increased SRAS, causing real output and employment to decline.
D) They reduced SRAS, causing real output and employment to decline.

Question

Quizplus · Accepted Answer

The soaring oil prices of 2007 and the first half of 2008 reduced SRAS (short-run aggregate supply) by increasing the costs of production for firms that use oil as an input. This caused a decline in real output and employment, as firms scaled back production and hiring in response to the higher costs. The reduction in output and employment contributed to the onset of the global financial crisis in 2008.

What Impact Did the Soaring Oil Prices of 2007 and the First