After an unexpected increase in the price of oil, the long-run adjustment ________ the price level and ________ the unemployment rate as they return to their original levels.
A)increases; increases
B)increases; decreases
C)decreases; increases
D)decreases; decreases

Question

Quizplus · Accepted Answer

In the long run, the economy adjusts to shocks such as an unexpected increase in the price of oil, and both the price level and the unemployment rate return to their original levels, implying that the price level decreases from the shock-induced high and the unemployment rate decreases back to its natural rate.

After an Unexpected Increase in the Price of Oil, the Long-Run