The United States was involved in a trade war with China. A column in the Wall Street
Question:
The United States was involved in a trade war with China. A column in the Wall Street Journal compared the effects of the trade war with the effects of the increase in oil prices in the 1970s that followed a decision by Arab members of the Organization of the Petroleum Exporting Countries (OPEC) to embargo shipping oil to the United States and countries in Western Europe: “The 1973 embargo tripled the price of oil. . . . Both that embargo and the new tariff barriers represent a supply shock.”
a. What does the columnist mean by a “supply shock”?
b. In what sense is an increase in tariffs a supply shock?
c. If the columnist is correct about the effect of tariffs, what effect will they have on the U.S. economy’s shortrun aggregate supply curve?
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