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

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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
Transcribed Image Text: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
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