Question 2 Oil prices and the AS-AD model in the medium run Consider the following model of the economy: - Wages are determined by the wage-setting...

Oil prices and the AS-AD model in the medium run.

Consider the following model of the economy:(See picture)part e. What will happen to the economy in the medium run if the markup , m, increases to 0.7? Explain why you can interpret the rise in m as equivalent to an oil price increase. Find the new values of Y(n) and i(n). Show on the diagram.