Question

Congratulations! You have been appointed an economic policy adviser to the U.S. You are told that the economy is significantly underutilizing its available resources and that the following will happen the next year: World recession will continue and the prices of oil will increase significantly. These two events will take the US economy from:

Multiple Choice

• From a recessionary gap to lower GDP, increasing the economic recession.

• From a recessionary gap to higher GDP, reducing the economic recession.

• From an inflationary gap to LR-SR equilibrium.

• From a recessionary gap to an inflationary gap.

Answer 1

From a recessionary gap to lower GDP, increasing the economic recession.
An increase in oil prices will further impact growth and reduce the GDP due to increase in the prices of oil (as a negative supply shock)