The effect of changes in oil prices:
A) depends on the policy response
B) is to increase inflation
C) is to increase interest rates
D) is to reduce output

Question

Quizplus · Accepted Answer

The effect of changes in oil prices on an economy indeed depends on the policy response of the government or central bank. For example, if oil prices rise, a central bank might raise interest rates to combat potential inflation, but this is not an automatic outcome; it's a policy choice. Similarly, the impact on inflation, interest rates, and output can vary based on how policymakers respond to the initial change in oil prices.

The Effect of Changes in Oil Prices