In 1973,the Organization of Petroleum Exporting Countries (OPEC)engineered a quadrupling of oil prices by restricting oil production.Which of the following is an appropriate description of this negative supply shock?
A)The AS curve likely shifted to the left and output likely fell because of this adverse shock.
B)In the short-run there was a movement out of general equilibrium leading to an increase in inflation as a likely result of this adverse shock.
C)In the short-run there was a movement out of general equilibrium leading to an increase in unemployment as a likely result of this adverse shock.
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

A negative supply shock, such as the one caused by OPEC's actions in 1973, typically results in a leftward shift of the Aggregate Supply (AS) curve. This shift can lead to higher prices (inflation) and lower output, which can increase unemployment as businesses adjust to the higher costs of production and reduced demand. Thus, all the described effects (A, B, C) are appropriate descriptions of the consequences of a negative supply shock.

In 1973,the Organization of Petroleum Exporting Countries (OPEC)engineered a Quadrupling