Question

Finland imports but does not export crude oil. Suppose Finland's current real GDP is at potential GDP. Now suppose there is a sudden decrease in the world price of crude oil, ceteris paribus, and there is no fiscal or monetary policy response to this shock. a) Draw a diagram showing the macroeconomic effects on the price level and real GDP in the short run. b) After the economy's adjust process to its new long run equilibrium, what will be the price level? Explain. c) After the economy's adjust process to its new long run equilibrium, what will be the interest rate? Explain