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Assuming that a country is suffering through a recession.
Assuming that a country is suffering through a recession.
(a) What would the correctly-labeled graph that shows current equilibrium output, the full-employment level of output, and the current equilibrium price level look like?
(b) Assuming that a major production input, oil, undergoes a large increase in price. What new information could be added to the graph above to show how the increase in the price of oil affects short-run aggregate supply, real output, and the price level in the short run.
(c) Following the increase in the price of oil, what will happen to unemployment in the short run? Where does it come from the graph?
(d) Would the change in unemployment likely be categorized as cyclical, frictional, seasonal, or structural, and why?
(e) What effect would the changes in parts (a) through (c) have on the natural rate of unemployment?
