Suppose the economy is in long- run equilibrium when the price of oil rises.Which one of the following is not a short- run effect of this situation?
A)an increase in the price level
B)an increase in unemployment
C)a decrease in short- run aggregate supply
D)an increase in real GDP above long- run real GDP
E)a decrease in consumer spending

Question

Quizplus · Accepted Answer

An increase in the price level (A), a decrease in short-run aggregate supply (C), and a decrease in consumer spending (E) are all possible short-run effects of a rise in the price of oil. An increase in unemployment (B) could also occur in the short run as firms face higher input costs and reduce production. However, an increase in real GDP above long-run real GDP (D) is not a short-run effect, as it implies that the economy has moved beyond its potential output level, which is not sustainable in the long run.

Suppose the Economy Is in Long- Run Equilibrium When the Price