14. In the accompanying diagram, the economy is in long- run macroeconomic equilibrium at point E when an oil shock shifts the short-run aggregate supply curve to SRAS2. Based on the diagram, answer the following questions. LRAS Aggregate price level SRAS2 SRAS1 E1 P1 AD1 Y1 Real GDP a. How do the aggregate price level and aggregate output change in the short run as a result of the oil shock? What is this phenomenon known as? b. What fiscal or monetary policies can the govern- ment use to address the effects of the supply shock? Use a diagram that shows the effect of policies cho- sen to address the change in real GDP. Use another diagram to show the effect of policies chosen to address the change in the aggregate price level. c. Why do supply shocks present a dilemma for gover ment policy makers?
14. In the accompanying diagram, the economy is in long- run macroeconomic equilibrium at point E when an oil shock shifts the short-run aggregate supply curve to SRAS2. Based on the diagram, answer the following questions. LRAS Aggregate price level SRAS2 SRAS1 E1 P1 AD1 Y1 Real GDP a. How do the aggregate price level and aggregate output change in the short run as a result of the oil shock? What is this phenomenon known as? b. What fiscal or monetary policies can the govern- ment use to address the effects of the supply shock? Use a diagram that shows the effect of policies cho- sen to address the change in real GDP. Use another diagram to show the effect of policies chosen to address the change in the aggregate price level. c. Why do supply shocks present a dilemma for gover ment policy makers?
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter23: Aggregate Demand And Aggregate Supply
Section: Chapter Questions
Problem 2CQQ
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