How do changes in the price of oil affect economies?
A) They lead to increased nominal GDP.
B) They do not contribute much to output fluctuations.
C) They change the economy principally by changing aggregate demand.
D) They may create both inflation and recession.

Question

Quizplus · Accepted Answer

Changes in the price of oil can have both inflationary and recessionary impacts on economies. If prices increase, it can lead to inflation as the cost of goods and services that require oil as an input rise, increasing overall prices. This can lead to a decrease in consumer spending and a slowdown in the economy, potentially resulting in a recession. On the other hand, if prices decrease, it can provide a boost to the economy as consumers have more disposable income to spend on other goods and services, leading to an increase in overall economic output. However, a sharp decrease in oil prices can also negatively impact oil-producing countries and their economies.

How Do Changes in the Price of Oil Affect Economies