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A sharp rise in the price of oil (a major input), would result in:
A. An increase in aggregate demand.
B. Demand (Pull) inflation.
C. An increase in aggregate supply.
D. Cost (Push) inflation.
Answer: D
Explanation:
Choice "a" is correct. Cost (Push) inflation is inflation caused by a shift left in aggregate supply. An
increase in input costs, such as a sharp increase in the price of oil, will cause the aggregate supply curve
to shift left and thus increase the aggregate price level causing inflation.
Choice "b" is incorrect. Demand (Pull) inflation is inflation caused by a shift right in aggregate demand.
Choice "c" is incorrect. An increase in the price of oil causes the aggregate supply curve to shift, not the
aggregate demand curve.
Choice "d" is incorrect. An increase in the price of oil will cause aggregate supply to decrease (shift left),
not increase.
A. Option D
B. Option A
C. Option B
D. Option C
Answer: C,D
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