An Oil Cartel Effectively Increases the World Price of Oil

question 87

Essay

An oil cartel effectively increases the world price of oil by 100 percent,leading to an adverse supply shock in both Country A and Country B.Both countries were in long-run equilibrium at the same level of output and prices at the time of the shock.The central bank of Country A takes no stabilizing-policy actions.After the short-run impacts of the adverse supply shock become apparent,the central bank of Country B increases the money supply to return the economy to full employment.a.Describe the short-run impact of the adverse supply shock on prices and output in each country.b.Compare the long-run impact of the adverse supply shock on prices and output in each country.

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Definitions:

Primary Alcohol

An organic compound with a hydroxyl group (-OH) attached to a carbon atom that has only one carbon-carbon bond (i.e., at the end of a carbon chain).

Ethylmagnesium Bromide

A chemical reagent used in organic chemistry, specifically as a Grignard reagent, for forming carbon-carbon bonds.

Aqueous Acid

An acid solution where water acts as the solvent, capable of donating hydrogen ions (H+) to bases.

Tertiary Alcohol

An alcohol in which the hydroxyl (-OH) group is attached to a carbon atom that is connected to three other carbon atoms.