Question

Congratulations! You have been appointed an economic policy adviser to the United States. You are told that the economy is significantly below its potential output and that the following will happen next year: World income will fall significantly and the price of oil will rise significantly. (The United States is an oil importer.)

a. What will happen to the price level and output?

Price level increases and output may increase or decrease.
Price level may increase or decrease and output decreases.
Price level may increase or decrease and output increases.
Price level decreases and output may increase or decrease.

Answer 1

Price level may increase or decrease and output decreases.

Step-by-step explanation:

The price level is determinated bu the money supply and demand. A single price, in this case oil, cannot determinate prices or we end up in a loop.

So this is insufficient information to determinate the price level.

While the income decrease at a worldwide level will make the output of the economy even lower.