Business, 04.08.2021 05:00 girly37

An oil price shock: Suppose the economy is hit by an unexpected oil price shock that permanently raises oil prices by $50 per barrel. For this question, use the IS-MP model. (a) This is a temporary increase in o(bar) in the Phillips curve: the shock o(bar) becomes positive for one period and then goes back to zero. Explain why this is correct. (b)Using the full IS-MP short-run model, explain what happens to the economy in the absence of any monetary policy action. Be sure to include graphs showing how output and inflation respond over time. (c) Suppose you are in charge of the central bank. What monetary policy action would you take and why

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An oil price shock: Suppose the economy is hit by an unexpected oil price shock that permanently rai...