Suppose that a permanent increase in oil prices both creates an inflation shock and, at the same

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Suppose that a permanent increase in oil prices both creates an inflation shock and, at the same time, reduces potential output. Use an SRAD-SRAS diagram to show the effects of the oil price increase on output and the inflation rate in the short run and the long-run in the following cases:

a) the gov doesn't engage in stabilization policy

b) the gov cuts taxes and increases gov spending

c) the central bank increases the money supply

d) the central bank increases its bond purchases in the long end of yield curve

Posted Date: Nov 28, 2021 08:11 PM

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Suppose that a permanent increase in oil prices both creates an inflation shock and, at the same

Question:

Expert Answer:

a the gov doesnt engage in stabilization policy Stabilization policy is a strategy enacted by a government or its central bank that is aimed at maintaining a healthy level of economic growth and minim... View the full answer

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