Assume the Economy Is Initially in Equilibrium with Real GDP

question 23

Essay

Assume the economy is initially in equilibrium with real GDP equal to potential GDP and the inflation rate at its target.Use aggregate demand and aggregate supply graphs to show the short-run and long-run effects of a sudden increase in the price of oil,with the Bank of Canada following its reaction function.Explain what is happening in each graph.

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Definitions:

Judgment-Proof

Refers to a situation where an individual or entity has little to no attachable assets for creditors to claim in case of a lawsuit judgment against them.

Execution

The process of enforcing a court judgment or the carrying out of a legal document’s instructions.

Guarantor

A person or entity that agrees to be responsible for another's debt or performance under a contract if the original party fails to meet their obligations.

Jointly

Involves two or more parties working together or sharing a specified obligation or liability.