Question
These are questions from Jones Macroeconomics. If there's an unexpected oil price shock and central bank doesn't respond to it, what would inflation and output
These are questions from Jones Macroeconomics.
If there's an unexpected oil price shock and central bank doesn't respond to it, what would inflation and output move as time goes.
I think as there's no monetary policy, MP (with real interest rate and short run output as variables) will move downward and AD curve will shift to right.
So AS curve will shift to the left first and AD curve shift right. Then AS curve will come back to normal and AD curve will come back to normal to. So the point of intersection is going clockwise. Am i right?
This is a second question.
It asks what would you do as a central banker.
I answered i would raise an real interest rate(increase nominal interest rate bigger because of an inflation)
Then AD curve will shift to left.
Then in AS-AS curve, AS will shift to the left first, then AD will shift to the left. Then AS curve will come back and AD will also. Then it gives a counterclockwise movement.
Am i right?
Thank you!
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started