14) There were two major shocks to the U.S. economy in 2007, leading to the severe recession of 2007-2009. One shock was related to oil prices; the other was the slump in the housing market. This question analyzes the effect of these two shocks on GDI using the AD-AS framework (mark the initial equilibrium E1, the equilibrium quantity Y1, and equilibrium price P1). a. Data taken from the Department of Energy indicate that the average price of crude oil in the world increased from $54.63 per barrel on January 5,2007 , to $92.93 on December 28,2007 . Would an increase in oil prices cause a demand shock or a supply shock? Illustrate the effect of this shock by shifting the appropriate curve and mark the new equilibrium E2, the equilibrium quantity Y2, and equilibrium price P2. b. Now starting in E2: The Housing Price Index, published by the Office of Federal Housing Enterprise Oversight, calculates that U.S. home prices fell by an average of 3.0% in the 12 months between January 2007 and January 2008 . Would the fall in home prices cause a supply shock or demand shock? Illustrate the effect of this shock by shifting the appropriate curve. Label the new equilibrium point E3, the equilibrium quantity Y3, and equilibrium price P3. c. Compare the equilibrium points in your diagram. What was the combined effect of the two shocks on real GDP? d. Compare the equilibrium points in your diagram. What was the effect of the two shocks on the aggregate 14) There were two major shocks to the U.S. economy in 2007, leading to the severe recession of 2007-2009. One shock was related to oil prices; the other was the slump in the housing market. This question analyzes the effect of these two shocks on GDI using the AD-AS framework (mark the initial equilibrium E1, the equilibrium quantity Y1, and equilibrium price P1). a. Data taken from the Department of Energy indicate that the average price of crude oil in the world increased from $54.63 per barrel on January 5,2007 , to $92.93 on December 28,2007 . Would an increase in oil prices cause a demand shock or a supply shock? Illustrate the effect of this shock by shifting the appropriate curve and mark the new equilibrium E2, the equilibrium quantity Y2, and equilibrium price P2. b. Now starting in E2: The Housing Price Index, published by the Office of Federal Housing Enterprise Oversight, calculates that U.S. home prices fell by an average of 3.0% in the 12 months between January 2007 and January 2008 . Would the fall in home prices cause a supply shock or demand shock? Illustrate the effect of this shock by shifting the appropriate curve. Label the new equilibrium point E3, the equilibrium quantity Y3, and equilibrium price P3. c. Compare the equilibrium points in your diagram. What was the combined effect of the two shocks on real GDP? d. Compare the equilibrium points in your diagram. What was the effect of the two shocks on the aggregate
