Suppose that the economy begins at a long-run equilibrium. Which of the following raises the price level and decrease real GDP in the short run?
A) a decrease in the quantity of money
B) an increase in the price of oil that decreases aggregate supply
C) an increase in the stock of capital that increases aggregate supply
D) an increase in government expenditures

Question

Quizplus · Accepted Answer

An increase in the price of oil that decreases aggregate supply typically leads to a rise in the price level and a decrease in real GDP in the short run, as it increases production costs for many businesses, leading to a leftward shift in the aggregate supply curve.

Suppose That the Economy Begins at a Long-Run Equilibrium