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.

---

Definitions:

Conjugate Base

The species that remains after a Bronsted-Lowry acid has donated a proton, capable of accepting a proton to reform the acid.

Acid/Base Reaction

A chemical reaction that involves the transfer of protons (H+) between a base (proton acceptor) and an acid (proton donor).

Basicity

A measure of the ability of a substance to accept hydrogen ions (protons), often used to describe the strength of bases.

Formic Acid

The simplest carboxylic acid, with the formula HCOOH, used industrially and as an antiseptic.