Answered

What will be the short-run consequences of an increase in the price of oil, a crucial input in production?

A. Lowering the price level
B. Decreasing short-run aggregate supply
C. Decreasing unemployment
D. Increasing real wages
E. Increasing aggregate demand



Answer :

GinnyAnswer

Final answer:

An increase in oil prices impacts short-run aggregate supply, unemployment, and wages.


Explanation:

An increase in the price of oil, a crucial input in production, will have short-run consequences:

  1. Decreasing short-run aggregate supply: Higher oil prices increase production costs, leading to a reduction in short-run aggregate supply as shown in the example of SRAS₁ shifting leftward to SRAS₂.
  2. Decreasing unemployment: The increase in production costs may lead to lower output and potentially result in increased unemployment.
  3. Increasing real wages: As costs rise due to higher oil prices, firms may adjust by increasing wages to maintain workforce stability.

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