After an unexpected increase in the price of oil, the long-run adjustment ________ the price level and ________ the unemployment rate as they return to their original levels.
A)increases; increases
B)increases; decreases
C)decreases; increases
D)decreases; decreases
E)remains constant; increases

Question

Quizplus · Accepted Answer

In the long run, the economy adjusts to unexpected changes, such as an increase in the price of oil, by returning to its natural level of output and employment. This means that the price level and the unemployment rate will eventually return to their original levels, implying that there is no permanent increase or decrease in the price level or the unemployment rate in the long run.

After an Unexpected Increase in the Price of Oil, the Long-Run