Assume there is a temporary increase in oil prices. a) What will happen to the price...

Assume there is a temporary increase in oil prices.

a) What will happen to the price level, unemployment, and output when the oil prices increased in the short-run? Show it on a graph.

b) Now suppose the government does not intervene? How will the economy adjust in the long-run? Explain.

c) Now suppose the government decided to intervene. What can be done? Give one example of fiscal policy and one example of monetary policy with the reasoning behind them? How will those policies affect the economy?

d) What will happen to the price level, output, and unemployment as a result of this intervention? What is the trade-off decision that the government must make in this case?

Expert Solution

Rahul Sunny answered 2 years ago

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