Suppose there is an oil supply shock to the U.S. economy due to an embargo by major oil producing nations. According to the real business cycle theory, the supply shock will, other things being equal

A. cause real Gross Domestic Product (GDP) to decline both in the short run and in the long run.
B. push the economy into an expansionary phase of the business cycle.
C. cause economy-wide deflation.
D. push real Gross Domestic Product (GDP) upward in the short run but downward in the long run.


Answer: A

Economics

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