What could create an increase in the price level and a reduction in real GDP?
A) a fall in stock prices
B) a war in the Middle East
C) declining government expenditures
D) tax rebates

Question

Quizplus · Accepted Answer

A war in the Middle East could lead to an increase in oil prices due to supply disruptions, which would increase the cost of production for firms and lead to higher prices for consumers. This could lead to inflation and a reduction in real GDP as consumers and businesses reduce spending. The other choices are less likely to cause such an effect.

What Could Create an Increase in the Price Level and a Reduction