If rapid increases in oil prices caused price levels to increase and real GDP to decrease in the short run, the economy would experience

Question

Quizplus · Accepted Answer

Rapid increases in oil prices would increase the cost of production for businesses, leading to higher prices for consumers, which causes cost-push inflation. The higher prices would reduce demand for goods and services, leading to a decrease in real GDP. This combination of high inflation and low economic growth is known as stagflation.

If Rapid Increases in Oil Prices Caused Price Levels to Increase