Question

The aggregate supply-aggregate demand model predicts that the short-run effects of a temporary but severe oil-cutoff would be:_____

Answer 1

Incomplete question.

Options;

a. A decrease in the price level and an increase in real output.

b. An increase in both the price level and real output.

c. An increase in the price level and a decrease in real output.

d. A decrease in both the price level and real output.

Answer:

c. An increase in the price level and a decrease in real output.

Explanation:

Remember, aggregate supply often refers to the total output of goods and services in an economy available for sale While aggregate demand refers to the total value of the money spent on the goods and services produced in an economy.

Note also, what this means is that as a result of the severe oil-cutoff, the supply of oil would reduce greatly, and with lower supply in the short-run; we would expect the price level to increase.

However, as the price level increases, in the short-run, there would be an immediate decrease in the real output of oil among producers.