In response to a positive one-time oil price shock, the U.S. economy would initially experience a ______. Next, as soon as the oil price shock ends, it would ______ by way of ______.

Question

BlackTom AI · Accepted Answer

A positive, one-time oil price shock is a negative supply shock: it raises firms’ production costs and shifts the short-run aggregate supply (SRAS) curve leftward, immediately raising the price level (inflation) and lowering real output relative to potential.

1) Relevant knowledge points and concepts
- Short-run aggregate supply (SRAS) responds to changes in production costs; an increase in oil prices shifts SRAS left.
- The aggregate demand (AD) curve is unchanged by a pure supply shock.
- The immediate effect of SRAS shifting left: higher price level (a sharp rise in inflation rate) and lower real GDP (output falls below potential, i.e., Y~_t drops).
- When the one-time shock ends, SRAS will move back toward its original position as costs, wages, and expectations adjust; this typically occurs through a sequence of AS shifts over time rather than an instantaneous jump.

2) Step-by-step reasoning
- Step 1: Oil price jumps → firms face higher marginal costs.
- Step 2: SRAS shifts left immediately → at the existing AD, the equilibrium price rises sharply and equilibrium output falls.
- Step 3: Once the oil price shock ends, costs fall back toward previous levels.
- Step 4: Wages, input contracts, and inflation expectations adjust gradually; SRAS shifts back toward its original position in steps.
- Step 5: As SRAS gradually returns, the price level and output move back toward the pre-shock (potential) levels.

3) Intermediate “calculations” (qualitative equilibrium changes)
- Initial equilibrium (P0, Y0). After shock: SRAS → SRAS1 => new equilibrium (P1 > P0, Y1 < Y0). After shock ends: SRAS moves back through SRAS2, SRAS3… → equilibrium approaches (P0, Y0).

4) Why the correct answer is correct
The description “sharp increase in inflation and a drop in Y~_t; gradually return to potential output; a sequence of shifts of the AS curve” exactly matches the supply-shock mechanics: immediate SRAS leftward effect and gradual reversal via successive AS adjustments.

5) Why the other options are incorrect
- Option saying “no change in Y~_t” is wrong because a supply shock reduces output. 
- Options invoking AD shifts are incorrect: oil-price shocks are supply-side, not demand-driven, so AD need not move.
- Options claiming an “economic expansion” or a single-step return ignore the sign of the output response and the gradual nature of wage/expectation adjustments.

6) Conclusion
Therefore, the economy initially experiences a sharp rise in inflation and a drop in Y~_t, and when the shock ends it gradually returns to potential output via a sequence of AS-curve shifts — matching the provided correct answer.

In response to a positive one-time oil price shock, the U.S. economy would initially experience a . Next, as soon as the oil price shock ends, it would by way of __.单项选择题

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In response to a positive one-time oil price shock, the U.S. economy would initially experience a ______. Next, as soon as the oil price shock ends, it would ______ by way of ______.单项选择题

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更多留学生实用工具

希望你的学习变得更简单

In response to a positive one-time oil price shock, the U.S. economy would initially experience a . Next, as soon as the oil price shock ends, it would by way of __.单项选择题