In October 2023, an ABC News article by Max Zhan discussed the potential economic impact on the United States of continuedconflict between Israel and Palestine.

"Aconflict that ensnares the Middle East could send oil prices soaring, which in turn would hike costs not only for gasoline but also for many consumer products that depend on diesel and jet fuel for transport, the experts said."

While the conflict continues, the world has not yet experienced soaring oil prices. In October 2023, the US average price of a gallon of gasoline was $3.53. In May 2024, the US average price of a gallon of gasoline is $3.67. This is because, to date, direct military conflict has not spread to other Middle Eastern countries.

Imagine, however, that in the summer of 2024, the conflict does spreadto other countries in the Middle East and the expert's prediction of soaring oil prices comes true. In response, the Biden Administration decides to take action by significantly cutting the national gasoline tax and offering gas vouchers to citizens who earn under $35,000/year.

On a piece of paperdraw a dynamic and clearly labeledAD/AS graph to demonstrate the imagined changes in theUS economyin the summer of 2024. Hint: Start with the economy at long-run equilibrium.