Last week, OPEC+ announced a 2 million bpd cut to its production targets for November reads the headlines Consumers of oil in the United States are expecting a rise in energy prices as winter approaches. Assume that the U.S. economy is in long-run equilibrium.

a. Use the aggregate demandaggregate supply model to illustrate graphically the short-run and long-run impact of this rise, on output and price level. In other words what happens in the short run andhow does the economy get back to long run? Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values; iv. thedirection the curves shift; and v. the terminal equilibrium values. State in words what happens to prices and output as a combined result of the supply shock, both in the short run and long run. What happens to unemployment rate in the short run and in the long run?Why?

b. If the Federal Reserve attempted to offset this deviation from the natural rate in the short run, should the money supply be increased or decreased? Show this action in the same graph and label the shifts. Which curve shifts? Does it shift to the right or left? What happens to output and prices as a result? What happens to unemployment rate? Explain.