Refer to the information provided in Figure 12.6 below to answer the questions that follow.
Figure 12.6
-Refer to Figure 12.6.Suppose the equilibrium output is initially $600 billion.An oil embargo would probably
A)increase both the equilibrium output and the price level.
B)decrease the equilibrium output and increase the price level.
C)increase the equilibrium output and decrease the price level.
D)decrease both the equilibrium output and the price level.

Question

Refer to the information provided in Figure 12.6 below to answer the questions that follow.
  Figure 12.6
-Refer to Figure 12.6.Suppose the equilibrium output is initially $600 billion.An oil embargo would probably
A)increase both the equilibrium output and the price level. 
B)decrease the equilibrium output and increase the price level. 
C)increase the equilibrium output and decrease the price level. 
D)decrease both the equilibrium output and the price level.

Quizplus · Accepted Answer

An oil embargo would increase the cost of production for many firms, leading to a decrease in aggregate supply. This shift in aggregate supply would decrease the equilibrium output and increase the price level, as shown in the graph. Therefore, the correct answer is (B) decrease the equilibrium output and increase the price level.

Refer to the Information Provided in Figure 12