In 2024, the U.S. economy is struggling. Unemployment has jumped. Trouble began in January 2023, with a spike in oil prices, generated by terrorist bombing of important production fields in Saudi Arabia. In January 2024, a second blow hits the economy, when households become much more risk averse, as they panic about corporations' high debt levels. The table below provides an incomplete list of macro data. Note: Inflation expectations are derived from the treasury 10-year TIPS spread. The Government borrows virtually all of its funds by issuing 10-year treasury notes. Key values: LTSG = 2.5% U* = 4% T* = 2% oil = 10% of CPI Phillips curve a = 0.5 = 2022:24 2023:04 2024:Q4 $50 4% 5% 6% 2.0% 4.8% -1.1% 100 2.00% 100 98 96 $2.0 trillion $2.2 trillion $2.5 trillion $1.7 trillion $1.3 trillion $1.2 trillion $200 billion 2.00% 2.00% 4.00% 2.50% 2.00% 2.50% 2.00% Crude oil price ($/bbl) Unemployment Consumer Price Index (CPI), year-on-year, % change CPl: index level CPI, excluding oil, year-on-year, % change Real U.S. output: index level Federal Government spending Federal taxes collected corporate borrowing level Corporate/Government bond spread 10-year Government bond yield 10-year yield minus TIPS yield We now use the quadrant above to depict AD/AS analysis for the 2023 oil shock. (4 points) Draw the 2023:Q4 LRAS Curve and the 2023:04 SRAS curve, assuming dynamic equilibrium Use the data in the tables to identify the equilibrium values 2023:Q4 prices and output. Now draw the AD and SRAS curves that capture the oil price shock. In 2024, the U.S. economy is struggling. Unemployment has jumped. Trouble began in January 2023, with a spike in oil prices, generated by terrorist bombing of important production fields in Saudi Arabia. In January 2024, a second blow hits the economy, when households become much more risk averse, as they panic about corporations' high debt levels. The table below provides an incomplete list of macro data. Note: Inflation expectations are derived from the treasury 10-year TIPS spread. The Government borrows virtually all of its funds by issuing 10-year treasury notes. Key values: LTSG = 2.5% U* = 4% T* = 2% oil = 10% of CPI Phillips curve a = 0.5 = 2022:24 2023:04 2024:Q4 $50 4% 5% 6% 2.0% 4.8% -1.1% 100 2.00% 100 98 96 $2.0 trillion $2.2 trillion $2.5 trillion $1.7 trillion $1.3 trillion $1.2 trillion $200 billion 2.00% 2.00% 4.00% 2.50% 2.00% 2.50% 2.00% Crude oil price ($/bbl) Unemployment Consumer Price Index (CPI), year-on-year, % change CPl: index level CPI, excluding oil, year-on-year, % change Real U.S. output: index level Federal Government spending Federal taxes collected corporate borrowing level Corporate/Government bond spread 10-year Government bond yield 10-year yield minus TIPS yield We now use the quadrant above to depict AD/AS analysis for the 2023 oil shock. (4 points) Draw the 2023:Q4 LRAS Curve and the 2023:04 SRAS curve, assuming dynamic equilibrium Use the data in the tables to identify the equilibrium values 2023:Q4 prices and output. Now draw the AD and SRAS curves that capture the oil price shock