Suppose there is a temporary supply shock because of a war in the Middle East,then ________.
A)this would constitute a cost push shock due to a restriction in the supply of oil
B)the AS curve would shift to the left
C)this could theoretically lead to stagflation
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

A temporary supply shock due to a war in the Middle East would restrict the supply of oil, leading to a cost push shock. As a result, the AS (aggregate supply) curve would shift to the left, leading to a decrease in output and an increase in prices. This situation could potentially lead to stagflation, which is a combination of high inflation and low economic growth. Therefore, all of the above options are correct.

Suppose There Is a Temporary Supply Shock Because of a War