The Long-Run Effect of an Increase in Oil Prices Is

Multiple Choice

The long-run effect of an increase in oil prices is a

A) fall in potential GDP.
B) lengthy recession until circumstances change and the aggregate demand curve shifts to the right.
C) permanent increase in inflation.
D) lengthy recession until the Fed changes monetary policy and the aggregate demand curve shifts to the right.
E) downward movement of the inflation adjustment line until the rate of inflation returns to the baseline rate.