Suppose There Was a Sharp Reduction in Stock Prices and a Sharp

question 66

Multiple Choice

Suppose there was a sharp reduction in stock prices and a sharp increase in the world price of crude oil. Within the framework of the AD/AS model, how would these two changes influence the U.S. economy?

• A) The lower stock prices would increase SRAS, and the higher crude oil prices would reduce AD; as a result, there would be downward pressure on the general level of prices.
• B) The lower stock prices would reduce SRAS, and the higher crude oil prices would increase AD; as a result, there would be upward pressure on the general level of prices.
• C) The lower stock prices would increase AD, and the higher crude oil prices would increase SRAS; as a result, output would tend to increase.
• D) The lower stock prices would reduce AD, and the higher crude oil prices would reduce SRAS; as a result, output would tend to decline.

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Definitions:

Air Suspension System

A type of vehicle suspension powered by an electric or engine-driven air pump or compressor, which pumps air into flexible bellows, typically made from textile-reinforced rubber.

Height Control Valve

A component in air suspension systems of vehicles that adjusts the ride height by controlling the air flow into or out of the air suspension bags.

Progressive Leaf Spring

A type of leaf spring suspension featuring leaves of varying lengths stacked together, providing a more comfortable ride by adjusting to load and road conditions progressively.

Pneumatic

Refers to technology or devices operated by compressed air or gas.