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Question 3 [3 marks total]. Oil price shocks have been a reoccurring phenomenon ove the last fifty years, causing significant fluctuations in the price of oil. Examples of oil price Page 3 of shocks include the early 1970s caused by the OPEC oil embargo, the early 1990s cause by the Gulf War, and the Arab Spring during the early 2010s. Oil-importing nations lik Australia are significantly affected by rising oil prices. Nonetheless, evidence has show that oil price shocks are a temporary phenomenon and eventually, prices decline. Assum that there is no fiscal policy response from the government in relation to an oil price shock a. Explain and illustrate the short-run effect of a temporary oil price shock on macroeconomic equilibrium using the AD-AS model. [0.5 marks] b. Explain and illustrate the adjustment process to back to long-run equilibrium based on the following: i. Self-correcting mechanism (i.e., with no policy response). [1 mark] ii. Active stabilisation response (i.e., with policy response). [Hint: there could be two active stabilisation polices here]. [1.5 marks]