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A positive supply shock, such as a decrease in the price of oil, is most likely to have which of the following short-run effects on the price level and output? (Choose one for each)

a) Price level: Decrease / Output: Increase
b) Price level: Increase / Output: Increase
c) Price level: Decrease / Output: Decrease
d) Price level: Increase / Output: Decrease

User Niger
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1 Answer

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Final answer:

A positive supply shock, such as a decrease in the price of oil, will lead to a decrease in the price level and an increase in output.

Step-by-step explanation:

A positive supply shock, such as a decrease in the price of oil, is most likely to have the following short-run effects:

a) Price level: Decrease / Output: Increase

When the price of oil decreases, it leads to a decrease in production costs for businesses, which allows them to produce goods and services at a lower cost. This increase in supply leads to a decrease in the price level and an increase in the output of goods and services.

User Knorv
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