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How the economy would naturally adjust back to equilibrium

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Reference no: EM132482216

Consider the Economy in long-run equilibrium. A sudden decrease in the price of oil causes the price of gasoline and energy (inputs) to fall. 

a. Graph the impact of this shock on the Economy, State whether the economy is in an expansionary or recessionary output gap following this shock.  

b.  Would we expect to witness an observed unemployment rate higher or lower than the natural unemployment rate following this shock? Briefly discuss why.

c. Explain, fully, how the economy would naturally adjust back to equilibrium

Reference no: EM132482216

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