Suppose that in the economy of Asisi, the price of energy is suddenly increasing drastically. How would you show this in an AD/SRAS/LRAS framework? Which curve would shift? Would the shift be to the right or left?

2b.(1) Explain the effect on prices and output.

2c. (1) What economic term is used for this situation?

2d. (2) How would the economy get back to its capacity and natural rate of unemployment according to the Classical economists? Explain the process.

2e. (2) What would John Maynard Keynes suggest needs to be done to move the economy back to its long run supply curve? What are the effects on output and inflation?

2f. (1) Why would the LRAS not shift in this case? What would cause the LRAS to shift?