During 2007, there was a substantial reduction in housing prices, and the world price of crude oil rose sharply. How did these two changes influence aggregate demand and aggregate supply in the United States? Use the AD–AS model to indicate the expected impact of these changes on output and the price level.

*8. When actual output exceeds an economy’s fullemployment output, how will the self-correcting mechanism direct the economy to long-run equilibrium? Why can’t the above-normal output be maintained?