Scenario 36-1

Suppose that in the first half of June 2022, the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy.

Refer to Scenario 36-1. In the short-run, the effects of the housing and financial crises:

A. reduce both the inflation rate and the unemployment rate.
B. raise the inflation rate and reduce the unemployment rate.
C. reduce the inflation rate and raise the unemployment rate.
D. raise both inflation and the unemployment rate.

Changes in oil prices can have significant effects on inflation and unemployment in an economy. When oil prices rise, production costs increase, leading to a decrease in supply and a rise in prices, causing an increase in inflation and potentially higher unemployment rates. Conversely, when oil prices fall, production costs decrease, leading to lower prices, potentially reducing inflation and improving unemployment rates due to increased demand.

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