suppose the economy is initially in long - run equilibrium. then suppose there is a sudden rise in the price…

suppose the economy is initially in long - run equilibrium. then suppose there is a sudden rise in the price of crude oil due to a military conflict in the middle east. according to the model of aggregate demand and aggregate supply, what happens to prices and output in the short run?\n a. prices rise and output rises.\n b. prices rise and output falls.\n c. prices fall and output falls.\n d. prices fall and output rises.

suppose the economy is initially in long - run equilibrium. then suppose there is a sudden rise in the price of crude oil due to a military conflict in the middle east. according to the model of aggregate demand and aggregate supply, what happens to prices and output in the short run?\n a. prices rise and output rises.\n b. prices rise and output falls.\n c. prices fall and output falls.\n d. prices fall and output rises.

Answer

Brief Explanations:

A sudden rise in the price of crude oil due to a military - conflict is a negative supply shock. In the short - run aggregate supply and demand model, a negative supply shock shifts the short - run aggregate supply curve to the left. When the short - run aggregate supply curve shifts left, the equilibrium price level rises and the equilibrium output level falls.

Answer:

B. Prices rise and output falls.