Suppose that the economy is currently at potential output, and then the price of oil doubles and stays at the new higher price. As before, we assume that this dramatically increases input costs for many businesses, as well as diminishing the purchasing power of consumers.

1. Describe the short-run impact of this change in oil prices on real GDP and the price level. Be specific about what component(s) of GDP change.Be sure to explain the economics behind any changes in the economy that you describe.Use the graph tools!
2. Assuming no further changes in policy, describe how the economy will transition from the short-run equilibrium in part a) to its long-run equilibrium.Be sure to explain the economics behind any changes in the economy that you describe.
3. If Congress was concerned about the effects of this shockon GDP, what fiscal policy might they pursue? What specific policies would they enact, and how would those policies offset the shock in the short run?Since this is fiscal policy, you should give a brief discussion of the multiplier in your discussion of the impact of these policies.