The oil shock of 2007-2008 saw the price of oil rising from less than $60 a barrel in March 2007 to over $145 a barrel in July 2008,and decreasing again to just over $30 a barrel in December 2008.Assuming the economy was at potential GDP prior to the oil shock,the decrease in the price of oil,such as what occurred between July 2008 and December 2008,acts as a positive supply shock,resulting in
A) a movement up along the Phillips curve.
B) a movement down along the Phillips curve.
C) an upward shift of the Phillips curve.
D) a downward shift of the Phillips curve.

Question

Quizplus · Accepted Answer

A decrease in oil prices reduces production costs, increasing aggregate supply, which shifts the Phillips curve downward, indicating lower inflation for any level of unemployment.

The Oil Shock of 2007-2008 Saw the Price of Oil