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Suppose an economy in long-run equilibrium experiences a sharp rise in oil prices. UseAD- AScurves to demonstrate the short-run and long-run effects on output and

Suppose an economy in long-run equilibrium experiences a sharp rise in oil prices. UseAD- AScurves to demonstrate the short-run and long-run effects on output and inflation and explainthe mechanisms behind each movement. Clarify the appropriate monetary policy response and its effects on output and inflation.

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