In the accompanying diagram , the economy is in long - run macroeconomic equilibrium at point E1 when an oil shock shifts the short - run aggregate...
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14) In the accompanying diagram, the economy is in long - run macroeconomic equilibrium at point E1 when an oil shock shifts the short - run aggregate supply curve to SRAS2. Based on the

diagram, answer the following questions.a.As a result of the oil shock, real GDP decreases to Y2 and the price level increases to P2. This is known as stagflation. b.The government can use monetary and fiscal policies or they can increase real GDP or lower the aggregate price level. The increase in GDP is portrayed in the shift from AD1 to AD2.
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c.The government can only use on policy at a time, however, the policy makes one thing better, while at the same time, it makes another problem worse.
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