Suppose an adverse supply shock drives up the world price of oil. Using the Philips curve...

Suppose an adverse supply shock drives up the world price of oil. Using the Philips curve and AD-AS model analyses the effect of the shock. What is the problem facing by the policymakers now?

20 MARKS

Expert Solution

Rahul Sunny answered 2 years ago

Suppose that the oil price sharply increased for a while, which increased production costs, causing an adverse supply shock.

Suppose that the oil price sharply increased for a while, which increased production costs, causing an adverse supply shock. A. Use the AD-AS model to show the effects on output and the price level in both the short-run and long-run. B. Show the adjustment process of the economy from the short-run to the long-run. C. What is the effect on unemployment in short-run and long-run? D. Can policymakers do something to accommodate this shock? Would the outcome be different in...

The world price of oil depends on the world supply of oil. The supply schedule is...

The world price of oil depends on the world supply of oil. The supply schedule is as follows: World Supply (barrels per day): 4 million 6 million 8 million World price per barrel: $25 $15 $10 The country Iran had a marginal cost of $2 per barrel to extract oil. Iraq has a marginal cost of $4 per barrel. Their oil drilling capacities are that they each can produce a maximum of 4 million ball els per day, or a...

Consider a permanent adverse productivity shock (for example, a permanent increase in the price of oil)...

Consider a permanent adverse productivity shock (for example, a permanent increase in the price of oil) which lowers the current and future productivity of capital and the current and expected future real incomes of households. Assuming a closed economy, first analyze the general equilibrium effects of this shock on output, employment, the real wage, the price level, and the real interest rate in both the classical and the Keynesian versions of macroeconomic adjustment. Second, explain how the adjustment effects would...

The collapse of the world oil prices is a beneficial supply shock to the U.S. petrochemical...

The collapse of the world oil prices is a beneficial supply shock to the U.S. petrochemical and many other U.S. industries. What happens? a. more petrochemicals will be sold b. petrochemical prices will decline c. the U.S. Aggregate Supply curve will shift right d. all of the above

Explain the concept of philips curve. Discuss how aggregate supply and philips curve are related to...

Explain the concept of philips curve. Discuss how aggregate supply and philips curve are related to each other?

1. Adverse Oil Price Shock (6 marks) At the beginning of the semester we identified falling...

1. Adverse Oil Price Shock At the beginning of the semester we identified falling oil prices as a potential risk factor for the global economy. The last few months the price of oil has dropped significantly for various reasons, and more recently shutdowns globally have exacerbated the problem by decreasing demand. Discuss the impact of a negative oil price shock on current account deficits, fiscal deficits and exchange rates.

If a central bank increases the money supply in response to an adverse supply shock, then...

If a central bank increases the money supply in response to an adverse supply shock, then which of the following quantities moves closer to its pre-shock value as a result? a. neither output nor the price level b. both the price level and output c. the price level but not output d. output but not the price level

Suppose that a country experiences a reduction in productivity—that is, an adverse shock to the production...

Suppose that a country experiences a reduction in productivity—that is, an adverse shock to the production function. l. What happens to the labor demand curve? m. How would this change in productivity affect the labor market—that is, employment, unemployment, and real wages—if the labor market is always in equilibrium? n. How would this change in productivity affect the labor market if unions prevent real wages from falling?

An oil cartel effectively increases the price of oil by 100 percent, leading to an adverse...

An oil cartel effectively increases the price of oil by 100 percent, leading to an adverse supply shock in both Country A and Country B. Both countries were in long-run equilibrium at the same level of output and prices at the time of the shock. The central bank of Country A takes no stabilizing policy actions. After the short-run impacts of the adverse supply shock become apparent, the central bank of Country B increases the money supply to return the...

Suppose that the world price for a good is 50, and the domestic demand and supply...

Suppose that the world price for a good is 50, and the domestic demand and supply curves are given by the following equations: DX: PD=100-4QD SX: PS=10+6QS How much is consumed? How much is produced domestically? What are the values of producer and consumer surplus? If a 5% import tariff is imposed, by how much do consumption and domestic production change? What is the change in consumer and producer surplus? How much revenue does the government earn from the tariff?...

Question