An increase in the price of imported petroleum is most likely to cause, in the short run
Correct answer: B. Higher prices and lower real output
- A. Lower prices and higher real output
- B. Higher prices and lower real output
- C. Higher prices and higher real output
- D. Lower prices and lower real output
Explanation
Imported petroleum is an important production input, so its higher price raises firms' costs. Short-run aggregate supply shifts left, creating cost-push inflation together with lower real output.
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About Macroeconomics
The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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