If rapid increases in oil prices caused price levels to increase and real GDP to decrease in the short run, the economy would experience
A)stagflation.
B)long-run economic decline.
C)hyperinflation.
D)an increase in the natural rate of unemployment.
E)a depression.

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