Question
! You have been appointed an economic policy adviser to srilanka ministry of finance. You are told that the economy is significantly below its potential
! You have been appointed an economic policy adviser to srilanka ministry of finance. You are told that the economy is significantly below its potential output and the following will happen next year: World income will fall significantly and the price of oil will rise significantly. (srilanka is an oil importer) a. What will happen to the price level and output? Using the AS/AD model, demonstrate your prediction graphically. b. What policy might you suggest to the government? c. Demonstrate the expected total effect of your advice using the AS/AD model and AE/AP (Multiplier) model!
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