In the hypothetical economy, the AD curve and SAS curve are given by the following equations: AD: Y=560-20OP+3G SAS: Y=8+5P-3P(oil) where G is the government spending and P(oil) is the price of oil. Please show your calculation step by step. Please round the numbers up to two decimal places if needed. 1. In the first period (t-0), the economy is operating at its potential where the government spending G=0 the price of oil P(oil)=1. Please draw the AD/AS diagram (including all three curves) and compute the initial Macroeconomic equilibrium price level and potential output level. 2. In the next period (t-1), the economy is hit by a sudden oil price surge in the world oil market. The oil price has increased sharply to P(oil)=10. Please draw the AD/AS diagram to show the economy right after the shock and explain the consequences in the short run. 3. The government has been running budget deficits for years and is currently in deep debts. It decides not to adopt any expansionary policy to bail out the economy. Please draw the AD/AS diagram to show how the economy will rocover throush the adiustment process (t=2). Explain carefully the problems

In the hypothetical economy, the AD curve and SAS curve are given by the following equations: AD: Y=560-20OP+3G SAS: Y=8+5P-3P(oil) where G is the government spending and P(oil) is the price of oil. Please show your calculation step by step. Please round the numbers up to two decimal places if needed. 1. In the first period (t-0), the economy is operating at its potential where the government spending G=0 the price of oil P(oil)=1. Please draw the AD/AS diagram (including all three curves) and compute the initial Macroeconomic equilibrium price level and potential output level. 2. In the next period (t-1), the economy is hit by a sudden oil price surge in the world oil market. The oil price has increased sharply to P(oil)=10. Please draw the AD/AS diagram to show the economy right after the shock and explain the consequences in the short run. 3. The government has been running budget deficits for years and is currently in deep debts. It decides not to adopt any expansionary policy to bail out the economy. Please draw the AD/AS diagram to show how the economy will rocover throush the adiustment process (t=2). Explain carefully the problems

Macroeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506756

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter10: Dynamic Change, Economic Fluctuations, And The Ad-as Model

Section: Chapter Questions

Problem 11CQ

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