How will an increase in the world price of crude oil influence the economy of an oil-importing country such as the United States?
A) Aggregate supply will decrease, leading to a decrease in real GDP.
B) Aggregate supply will increase, leading to an increase in real GDP.
C) Aggregate supply will increase, leading to an increase in prices and smaller GDP.
D) A change in the price of an imported good will not affect the domestic economy of an oil-importing country.

Question

Quizplus · Accepted Answer

An increase in the world price of crude oil will lead to an increase in the price of imported oil for an oil-importing country like the United States. This will result in higher energy costs for businesses and households, causing a decrease in aggregate supply. As a result, the cost of production will increase, leading to a decrease in real GDP. Thus, option A is the correct answer.

How Will an Increase in the World Price of Crude