Question

During the 1970s, some countries stopped oil sales to the United States. As petroleum prices rose: a)both aggregate demand and the aggregate price level rose. b)both aggregate supply and the aggregate price level fell. c)both aggregate demand and the aggregate price level fell. d)aggregate supply fell and the aggregate price level rose.

Answer 1

Answer:

D. Aggregate supply fell and aggregate price level rose is the correct answer.

Explanation:

During Yom-Kippur War Egypt and Syria attacked Israel, When Soviet union started sending arms to Syria and Egypt, US president Richard Nixon started supplying to Israel. OPEC countries were angry due to this and declared  embargo on export of oil to USA and Netherlands who were main supporters of Israel. The embargo continues even when the war had ended and sparked an international energy crisis. USA earlier had assumed that the oil boycott would hurt the Persian Gulf financially but the increased price power barrel due to embargo covered the reduced production.