The increase in world oil prices in 1990 initially
A) caused the AS curve to shift upward as wage rates quickly adjusted
B) increased the level of GDP associated with high price levels
C) shifted the aggregate expenditure line upward
D) caused the AS curve to shift upward due to higher costs per unit of output
E) caused the AD curve to shift leftward due to an increasing interest rate

Question

Quizplus · Accepted Answer

An increase in world oil prices would increase the cost of production for firms, causing a shift in the AS curve upwards as firms would have to charge a higher price to cover their costs. This would result in a decrease in the quantity of output demanded and a decrease in real GDP, as shown by the movement along the AD curve. Therefore, choices A, B, C, and E are incorrect.

The Increase in World Oil Prices in 1990 Initially