Suppose that there is a temporary, but significant, increase in oil prices in th

Question

Suppose that there is a temporary, but significant, increase in oil prices in the economy depicted in the figure to the right Using the 3-point curved line drawing tool, show the impact the elevated oil prices have on the macroeconomy. Property label this line. Carefully follow the instructions above, and only draw the required objects. If the central bank wishes to prevent the equilibrium price level from changing in response to the oil price increase, it should decrease the quantity of money in circulation in order to shift aggregate demand leftward. increase the quantity of money in circulation in order to shift aggregate demand rightward. decrease the quantity of money in circulation in order to shift the short-run aggregate supply curve rightward decrease the quantity of money in circulation so that oil prices will fall.

Explanation / Answer

AD will come down

SRAS will shift to left

LRAS also shift to left

B) A is the answer

If central bank wishes to decrease the demand then it must make sure that too much money supply must decrease so demand for the goods will come down.

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