-The Figure Above Shows the Initial Aggregate Demand Curve, AD

question 180

Essay

-The figure above shows the initial aggregate demand curve, AD?, the initial short-run aggregate supply curve, SAS?, and the long-run aggregate supply curve, LAS. The points in the figure show possible combinations of real GDP and the price level at which the economy of Atlantia is in macroeconomic equilibrium. The economy is initially at point A. Then, Atlantia's oil producers form a price-fixing organization and increase the price of oil. Suppose that potential GDP does not change and that Atlantia's Central Bank takes no action. Draw the new aggregate demand and short-run aggregate supply curves in the figure to show the effects of this event on Atlantia's real GDP and price level.
a)What happens to aggregate supply and aggregate demand?
b)What are the new equilibrium real GDP and price level?
c)Will the rise in the price of oil lead to inflation in Atlantia? Why or why not?

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Definitions:

Public Life

Activities or roles held in the public sphere, outside of the private domain, involving governance, policy-making, or civic engagement.

Revolution

A fundamental and often sudden change in political power and political organization, usually occurring when the population revolts against current authorities.

Owen

Robert Owen was a Welsh textile manufacturer, philanthropic social reformer, and one of the founders of utopian socialism and the cooperative movement.

Communitarianism

Social reform movement of the nineteenth century driven by the belief that by establishing small communities based on common ownership of property, a less competitive and more individualistic society could be developed.