Suppose the Economy Is Initially in Equilibrium, and Then an Energy

question 94

Multiple Choice

Suppose the economy is initially in equilibrium, and then an energy shock occurs, such as when OPEC raised oil prices in the 1970s.In terms of inflation and unemployment, which of the following is likely to result?  

• A) Prices and unemployment will likely rise. 
• B) Prices and unemployment will likely fall. 
• C) Prices will rise and unemployment will likely fall. 
• D) Prices will fall and unemployment will likely rise.

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Definitions:

Panic Of 1819

The first widespread economic crisis in the United States, marked by bank failures, foreclosures, and severe unemployment, leading to significant shifts in economic policy.

Hard Currency

A currency that is widely accepted around the world as a form of payment and is known for its stability and reliability.

Inflation

The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.