How the macroeconomy would evolve in response to the shocks

Reference no: EM132118718

Question: The oil price shocks of 2006-2009: Between 2006 and the middle of 2008, oil prices rose sharply - from around $60 to more than $140 per barrel. By the end of 2008, however, oil prices had fallen even more sharply, to just over $40 per barrel. Think of these events as two separate shocks.

(a) What, precisely, are the two shocks? (For the purpose of this question, let's ignore the significant role played by the financial crisis itself.)

(b) Using the AS/AD framework, explain how the macroeconomy would evolve in response to these shocks.

Reference no: EM132118718

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