The Long-Run Effect of an Increase in Oil Prices Is

question 174

Multiple Choice

The long-run effect of an increase in oil prices is a

• A)fall in potential GDP.
• B)lengthy recession until circumstances change and the aggregate demand curve shifts to the right.
• C)permanent increase in inflation.
• D)lengthy recession until the Fed changes monetary policy and the aggregate demand curve shifts to the right.
• E)downward movement of the inflation adjustment line until the rate of inflation returns to the baseline rate.

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