Figure
The Economy in 2008
In the first half of June 2008 the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were impacting the economy.
-Refer to The Economy in 2008.In the short run the increased prices of world commodities

Question

Quizplus · Accepted Answer

The increased prices of world commodities would lead to a rise in production costs, which would then lead to a decrease in output in the short run. This decrease in output would also be accompanied by a rise in the price level due to the increased cost of production. Therefore, the correct choice is B - raise the price level and reduce output.

Figure The Economy in 2008