The significant increases in oil prices during the late 2000s was an example of
A) an aggregate demand shock that increased the price level and increased the rate of growth of real Gross Domestic Product (GDP).
B) an aggregate demand shock that reduced the price level and reduced the rate of growth of real Gross Domestic Product (GDP).
C) an aggregate supply shock that increased the price level and reduced the rate of growth of real Gross Domestic Product (GDP).
D) an aggregate supply shock that reduced the price level and increased the rate of growth of real Gross Domestic Product (GDP).

Question

Quizplus · Accepted Answer

The significant increases in oil prices during the late 2000s can be attributed to an aggregate supply shock. This is because the increase in oil prices was caused by a decrease in the availability of oil which reduced the supply of goods and services that could be produced with oil. As a result, the price level increased and the rate of growth of real GDP decreased. Therefore, option C is the best choice.

The Significant Increases in Oil Prices During the Late 2000s