4;49 Ii 6 01 - 'Q' 0 '5'} HD or..." 35%; at its potential level at Y'\"; and ination (or the price level) is at its target rate (set by the central bank) at 1H\". Page 2 013 Question [10 marks total]. Oil price shocks have been a reoccurring phenomenon over the lastfty years, causing signicant uctuations in the price of oil. Examples of oil price shocks include the early 19705 caused by the OPEC oil embargo, the early 19903 caused by the Gulf War, and the Arab Spring during the salty 20105. Oil-importing nations like Australia are signicantly affected by rising oil prices. Nonetheless, evidence has shown that oil price shocks are a temporary phenomenon, and eventually. prices decline. Assume that there is no scal policy response from the government in relation to an oil price shock. Use Fig.1 as your starting point. :1. Explain and illustrate the shortrun effect of a temporary oil price shock on macroeconomic equilibrium using the AD-AS model. [3 marks]. b. Explain and illustrate the adjustment process back to longan equilibrium based on the following: i. Self-correcting mechanism (i.e., with no policy response). [2 marks] ii. Active stabilisation response (i.e., with policy response). Note, there are TWO active stabilisation polices here. Explain both. [4 marks] 6. Based on your answers in part (b), does the 'divine coincidence' hold? [1 mark] Page 3 of 3 asaeoomaaavoeesmse {a $1131] :3 t? \"I O