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Knapp7 - WEEK 7 CH13 Q2 In 2008 the price of oil rose...

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WEEK 7 CH13, Q2 – In 2008, the price of oil rose sharply on world markets. What impact would you expect there to be on the aggregate price level and on real GDP? An increase in the aggregate price level and a decrease in real GDP. Illustrate your answer with aggregate demand and supply curves. What would you expect to be the effect on interest rates if the Fed held the money supply constant? The effect on the interest rate will be ambiguous. Tell a complete story. CH13, Q3 – By using aggregate supply and demand curves to illustrate your points, discuss the impacts of the following events on the price level and on equilibrium GDP (Y) in the short run: a. A tax cut holding government purchases constant with the economy operating at near full capacity. b. An increase in the money supply during a period of high unemployment and excess industrial capacity. 1 Ron_Knapp7.doc
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c. An increase in the price of oil caused by a war in the Middle East, assuming that the Fed attempts to keep interest rates constant by accommodating inflation.
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