Assume that an economy's long-run equilibrium is described as follows: economic growth at 2.5% pa, the natural rate of unemployment at 6% and expected inflation at 2%.

Please note the starting position of the economy is LR Equilibrium and your policy is a large rise in energy costs. Assume the price level is not sticky.

Using large AD/AS and Phillips curve diagrams, illustrate the short-run and/or long-run effects of the policy or event on the economy. Briefly explain what happens.