After an Unexpected Increase in the Price of Oil, the Long-Run

question 99

Multiple Choice

After an unexpected increase in the price of oil, the long-run adjustment ________ the price level and ________ the unemployment rate as they return to their original levels.

• A)increases; increases
• B)increases; decreases
• C)decreases; increases
• D)decreases; decreases

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Definitions:

Inflation Rate

The rate of increase in prices across a broad spectrum of goods and services, resulting in reduced purchasing power.

Saving

The portion of income not spent on consumption but kept aside for future use, often in a deposit account or as an investment.

Classical Dichotomy

The conceptual distinction between real and nominal variables within the economy, implying that alterations in the money supply solely impact nominal variables.

Nominal Variables

Variables measured in monetary terms that have not been adjusted for inflation, representing current prices.