AD/AS model. Country A is an oil exporting country. The aggregate demand and supply functions are given as below: AD : Y = 710 - 30P + 5G+3Poil AS : Y = 10 + 5P - 2Poil where Y is real GDP, P is the price level, G is the government purchases, and Poil is the world price of oil. 1. Write down the equilibrium condition. 2. Solve for the equilibrium value of real GDP and the price level (hint: take G and Poil as known variables). 3. Draw the AD/AS graph to show when Poil rises in the world market, what will happen the AD and SAS curves. Explain the price level effect and the output effect due to the change of the oil price.

AD/AS model. Country A is an oil exporting country. The aggregate demand and supply functions are given as below: AD : Y = 710 - 30P + 5G+3Poil AS : Y = 10 + 5P - 2Poil where Y is real GDP, P is the price level, G is the government purchases, and Poil is the world price of oil. 1. Write down the equilibrium condition. 2. Solve for the equilibrium value of real GDP and the price level (hint: take G and Poil as known variables). 3. Draw the AD/AS graph to show when Poil rises in the world market, what will happen the AD and SAS curves. Explain the price level effect and the output effect due to the change of the oil price.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter1: Welcome To Economics!

Section: Chapter Questions

Problem 6SCQ: Suppose we extend the circular flow model to add imports and exports. Copy the circular flow diagram...

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AD/AS model. Country A is an oil exporting country. The aggregate demand and supply functions are given as below: AD : Y = 710 − 30P + 5G+3Poil AS : Y = 10 + 5P − 2Poil where Y is real GDP, P is the price level, G is the government purchases, and Poil is the world price of oil. Write down the equilibrium condition. Solve for the equilibrium value of real GDP and the price level (hint: take G and Poil as known variables). Draw the AD/AS graph to show when Poil rises in the world market, what will happen the AD and SAS curves. Explain the price level effect and the output effect due to the change of the oil price.
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