Assume an economy is initially operating at the natural rate of output. a. Draw an AD-AS model. Label the initial equilibrium point as point A. Use the model to illustrate graphically the short-run effects on price and output when the world oil price suddenly increases. Label the new equilibrium as point B. b. What happens to inflation and unemployment in the short run? c. Label in your diagram the long-run equilibrium point if the economy recovers on its own. Name it Point C. d. What monetary policy should the Fed use to help the economy recover in the short run? Label the equilibrium point in your diagram if the Fed took the proposed action. Name it Point D.

Assume an economy is initially operating at the natural rate of output. a. Draw an AD-AS model. Label the initial equilibrium point as point A. Use the model to illustrate graphically the short-run effects on price and output when the world oil price suddenly increases. Label the new equilibrium as point B. b. What happens to inflation and unemployment in the short run? c. Label in your diagram the long-run equilibrium point if the economy recovers on its own. Name it Point C. d. What monetary policy should the Fed use to help the economy recover in the short run? Label the equilibrium point in your diagram if the Fed took the proposed action. Name it Point D.

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter15: Aggregate Demand And Aggregate Supply

Section15.2: Explaining Short-run Economic Fluctuations

Problem 2QQ

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