Fed tries to accommodate this negative supply shock

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Currently oil prices are below their normal levels, but once the U.S. economy and the other economies around the world reach their steady state growth rates, oil prices will rise sharply. Assume that currently, Using the AD/AS model (LRAS, SRAS, and AD curves) and the short-run and long-run Phillips curves, illustrate and explain how an increase in oil prices might affect P, Y, , and u in the short run and in the long run. What happens to the inflation rate if the Fed tries to accommodate this negative supply shock?

Reference no: EM131098299

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