In the short run,a reduction in the price of oil will cause
A)a reduction in output.
B)an increase in the price level.
C)a reduction in the interest rate.
D)all of the above
E) none of the above

Question

Quizplus · Accepted Answer

A reduction in the price of oil typically leads to lower production costs for many businesses, which can stimulate economic activity. This increased activity can lead to higher demand for money. However, in the short run, the immediate effect can be a reduction in inflationary pressures (since oil is a significant input cost for many goods and services), which can lead the central bank to lower interest rates to maintain its inflation target.

In the Short Run,a Reduction in the Price of Oil