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 decreases.
D)rises, and real GDP remains the same.
E)falls, and real GDP increases.

Question

Quizplus · Accepted Answer

A fall in the price of oil would lead to a decrease in the cost of production for firms that use oil as an input, such as transportation and manufacturing. This would result in lower costs and increased profitability for these firms, leading to an increase in their production and potentially hiring more workers. This would result in an increase in real GDP. On the other hand, a fall in the price of oil would also lead to lower revenues for countries that export oil, such as OPEC countries. This would lead to a decrease in their GDP, which would have a spillover effect on the global economy. Overall, the decrease in oil prices would result in an increase in real GDP for oil-importing countries and a decrease in GDP for oil-exporting countries.

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