mtmccormick
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Hey I have no clue about this question. Can someone explain it pls??
"Suppose that a permanent increase in oil prices both creates an inflationary shock and reduces potential output. Use an AD-AS diagram to show the effects of the oil price increase on output and inflation in the SR and LR, assuming there is no policy response. What happens if the Reserve Bank responds to the oil price increase by tightening MP?"
"Suppose that a permanent increase in oil prices both creates an inflationary shock and reduces potential output. Use an AD-AS diagram to show the effects of the oil price increase on output and inflation in the SR and LR, assuming there is no policy response. What happens if the Reserve Bank responds to the oil price increase by tightening MP?"