The year 1973 was a bad year for alloil-importing nations such as the United Sta

Question

The year 1973 was a bad year for alloil-importing nations such as the United States. A war betweenIsrael and the Arab nations led to a quadrupling of oil prices bythe Organization of Petroleum Exporting Countries (OPEC). Thisincrease in oil prices greatly affected aggregate supply inoil-importing nations.

The graph below shows an economy's aggregate demand curve and itsshort-run and long-run aggregate supply curves (labeled AD, SRAS,and LRAS, respectively). Initially, the economy is in macroeconomicequilibrium. Rising oil prices raise economy-wide costs ofproduction, shifting the SRAS curve from SRAS1 to SRAS2.

Explanation / Answer

B.   An inflationary gap In my opinion, this is the right answer, because the short runSRAS is above the LRAS equilibrium which create this over theexpectation gap that is kind like what US experienced a few monthsago. B.   An inflationary gap

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