Suppose That There Has Been Bad Weather Resulting in a Temporary

question 39

Multiple Choice

Suppose that there has been bad weather resulting in a temporary decrease in the availability of oil and the economy has reached its new short-run equilibrium. What happens as the economy moves from this short-run equilibrium to long-run equilibrium?

• A) Prices and output rise.
• B) Prices and output fall.
• C) Prices rise and output falls.
• D) Prices fall and output rises.

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Definitions:

Call Option

A financial contract that gives the holder the right, but not the obligation, to buy a stock, bond, commodity, or other asset at a specified price within a specific time period.

In-the-money

Describes an option that has intrinsic value, where a call option's strike price is below the market price of the underlying asset, or a put option's strike price is above it.

Intrinsic Value

The perceived or calculated real value of an asset, investment, or company based on fundamental analysis without regard to its market value.

Put Option

A financial contract that gives the holder the right, but not the obligation, to sell a specified amount of an underlying asset at a predetermined price within a specified time frame.