An oil cartel effectively increases the price of oil by 100%, leading to an adve
ID: 1176279 • Letter: A
Question
An oil cartel effectively increases the price of oil by 100%, leading to an adverse supply shock in both country A and country B. Both countries were in long-run equilibrium at the time of the shock. Use the chapter 10 model of aggregate supply and aggregate demand to answer the following questions.
a. Country A takes no stabilizing action. Use graphs to show the short and long run impacts of the temporary supply shock.
b. Country B attempts to stabilize the economy. What policy and this country use? Use graphs to show the short and long run impacts of the temporary shock.
c. Draw a graph of output and prices over time for each country.
Explanation / Answer
An oil cartel effectively increases the price of oil by 100%, leading to an adve