Question
In: Economics
Graph how would a significant increase of the oil price affect a) Money Supply/Demand Graph b)...
Graph how would a significant increase of the oil price affect
a) Money Supply/Demand Graph
b) Market Equilibrium Graph
c) Nominal Rate of Interest Graph
Solutions
Expert Solution
SUBPART A and C
An increase in oil price would increase the price level in the economy (inflation) .
money supply and money demand curve shifts to the left, as a result
the nominal interest rate 'r' falls
Subpart b
A significant increase in oil price, would increase the cost of
production of those goods in which oil is major input. An increase
in the cost of production would lead to a leftward shift in the
supply curve, demand remaining the same.
hence, the price rises to P' and Q falls to Q' giving the new
equilibrium E1
Rahul Sunny answered 1 year agoRelated Solutions
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