The Wall Street Journal October 26, 2015 U. Companies Warn of Slowing Economy Big firms to post first decline in both earnings and sales since the...

The article also notes that there are very low energy prices in the economy. Draw an aggregate demand-aggregate supply framework and start with the economy in a full employment equilibrium. Now show the effect of the discussion in the article in this market. Incorporate into your answer the effect of lower energy prices. Once you have arrived at a new equilibrium versus the one you started with, explain why your results may give the Fed less concern about inflation as they continue to keep interest rates low. (8 points)