A one-time increase in the price of oil followed by a one-time increase in aggregate demand produce
A) continuing cost-push inflation.
B) continuing demand-pull inflation.
C) a one-time decrease in the price level.
D) a one-time increase in the price level.

Question

Quizplus · Accepted Answer

A one-time increase in the price of oil will initially cause a leftward shift in the aggregate supply curve, leading to a higher equilibrium price level and lower real GDP. However, if this is followed by a one-time increase in aggregate demand, the equilibrium price level will rise further while real GDP increases. This combination of events would result in a one-time increase in the price level, without necessarily leading to continuing inflationary pressure.

A One-Time Increase in the Price of Oil Followed by a One-Time