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Q.2 AD-AS model analysis for an increase in oil price. Start with an initial AD-AS model...

Q.2 AD-AS model analysis for an increase in oil price.

  1. Start with an initial AD-AS model with full employment equilibrium. Please label all the axes and the curves. Label the equilibrium as “1”.
  1. Let’s say that there is an oil shock (the price of oil has increased). What happens to which curve? Make sure to show the changes in the above AD-AS model. Therefore, what happens to the equilibrium and the economic condition? Explain all the changes in writing as well.

  1. What do we call this economic status? Explain how this economic situation is not the same with the recession in general.

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