Oil prices increase sharply, raising the price level and decreasing real GDP. The Fed has an incentive to

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When oil prices increase sharply, it leads to higher production costs for many goods and services, which can raise the overall price level (inflation) and decrease real GDP. In such a scenario, the Federal Reserve (Fed) might increase the quantity of money in the economy to stimulate economic activity and reduce unemployment, even though this could potentially exacerbate inflation in the short term.

Oil Prices Increase Sharply, Raising the Price Level and Decreasing