Suppose OPEC unexpectedly collapses, which leads to a fall in the price of oil. As a result, the price level
A)rises, and real GDP increases.
B)rises, and real GDP decreases.
C)falls, and real GDP increases.
D)falls, and real GDP decreases.
E)rises, and real GDP remains the same.

Question

Quizplus · Accepted Answer

A fall in oil prices reduces production costs, leading to lower price levels and increased real GDP due to higher aggregate supply.

Suppose OPEC Unexpectedly Collapses, Which Leads to a Fall in the Price