At the beginning of 2022, Russia started a war in Ukraine. As a result of this war, oil and gas prices went up to unprecedented levels. You are interviewed by the Financial Times in order to explain the readers what lies ahead.

1) (5 points) Assume that oil and gas are used mainly as input for production. What will happen to firms in the economy? What will happen to total GDP?

2) (10 points) What will happen to the short term supply curve? What does this imply for prices?

3) (10 points) The role of central banks is to control prices. What could the ECB do if it is not happy with outcome laid down in the previous question?