The graph to the right shows the effect of an increase in oil prices. 1) Using the line drawing tool, show how the economy will self-correct. Properly label your line. 2) Using the point drawing tool, indicate the new equilibrium point. Label the point E₂ Note: Carefully follow the instructions above, and only draw the required objects. The economy is currently in long-run equilibrium. Suppose there is a sudden and significant increase in oil prices. Which of the following describes the short-run effect on the economy? OA. Both aggregate demand and short-run aggregate supply rise, causing output to rise above the natural rate. B. Aggregate demand increases, the price level rises, and output rises above the natural rate. OC. Short-run aggregate supply increases, the price level falls, and output rises above the natural rate. PP1 Price Level, P P LRAS AS2AS1 Y1 Yn Aggregate Output, Y AD
The graph to the right shows the effect of an increase in oil prices. 1) Using the line drawing tool, show how the economy will self-correct. Properly label your line. 2) Using the point drawing tool, indicate the new equilibrium point. Label the point E₂ Note: Carefully follow the instructions above, and only draw the required objects. The economy is currently in long-run equilibrium. Suppose there is a sudden and significant increase in oil prices. Which of the following describes the short-run effect on the economy? OA. Both aggregate demand and short-run aggregate supply rise, causing output to rise above the natural rate. B. Aggregate demand increases, the price level rises, and output rises above the natural rate. OC. Short-run aggregate supply increases, the price level falls, and output rises above the natural rate. PP1 Price Level, P P LRAS AS2AS1 Y1 Yn Aggregate Output, Y AD
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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