Suppose, OPEC decides to cut down oil production, causing oil price to go up. a. Explain with the help of an aggregate demand and aggregate supply diagram how price level  and potential level of output changes if the government does not take any policy initiatives. b. Now, suppose the government takes policy actions to bring the economy back to its potential  level of output. Recommend what possible policies the government can take and explain with the  help of a diagram how this will affect your answer in part a.

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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Suppose, OPEC decides to cut down oil production, causing oil price to go up.

a. Explain with the help of an aggregate demand and aggregate supply diagram how price level  and potential level of output changes if the government does not take any policy initiatives.

b. Now, suppose the government takes policy actions to bring the economy back to its potential  level of output. Recommend what possible policies the government can take and explain with the  help of a diagram how this will affect your answer in part a.

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