The significant increases in oil prices during the latter 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 increase in oil prices was due to an increase in the cost of production, which causes a decrease in the aggregate supply. This led to an increase in the price level and a decrease in real GDP growth, making it an example of an aggregate supply shock.

The Significant Increases in Oil Prices During the Latter 2000s