The three oil shocks the U.S.experienced in 1973-1974,1979-1980 and 2007-2008 had which of the following consistent results?
A)a decline in real wages due to an upward shift of the production function
B)an increase in the rental price of capital along with a healthy stock market response
C)a decline in real wages due to a downward shift of the MPL curve
D)an increase in the rental price of capital due to an upward shift of the production function
E)none of the above

Question

Quizplus · Accepted Answer

The three oil shocks caused an increase in the price of oil and other goods and services, leading to a decrease in purchasing power and a decline in real wages. This can be explained by a downward shift of the MPL (Marginal Product of Labor) curve, as the cost of production increases with the higher price of oil. Option A is incorrect as there would be no upward shift in the production function due to higher oil prices. Option B is incorrect as there is no necessarily healthy stock market response to an oil shock, and rental prices of capital may increase due to scarcity of resources, not healthy market response. Option D is also incorrect as the rental price of capital may increase due to a scarcity of resources caused by higher oil prices, not an upward shift of the production function. Therefore, option C is the best choice.

The Three Oil Shocks the U