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Suppose gasoline prices increase sharply when the time comes for you to graduate. Use the economic...

Suppose gasoline prices increase sharply when the time comes for you to graduate. Use the economic fluctuations model to explain why you might have difficulty in finding a job in the six months after you graduate.

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Answer #1

Increase in gasoline price will increase the cost of inputs for firms, raising their production costs. So firms will decrease production and output, and therefore will hire less labor. Lower demand for labor will lower my chances of getting a job.

It can be depicted using following AD-AS model. AD0 & SRAS0 are initial aggregate demand & short run aggregate supply curves, intersecting at point A with price level P0 and real GDP Y0. Higher gasoline prices will shift SRAS0 leftward to SRAS1, intersecting AD0 at point B with higher price level P1 and lower real GDP & output Y1, causing stagflation and a rise in unemployment rate.

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