Decrease the quantity of money in circulation

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Suppose that there is a temporary, but significant, increase in oil prices in an economy with an upward-sloping SRAS curve.

a. If policymakers wish to prevent the equilibrium price level from changing in response to the oil price increase, should they increase or decrease the quantity of money in circulation? Why?

b. If policy makers wish to prevent equilibrium real GDP from changing in response to the oil price increase should they increase or decrease the quantity of money in circulation? Why?

c. Can policymakers stabilize both the price level and real GDP simultaneously in response to a short-lived but sudden rise in oil prices? Explain briefly.

Reference no: EM13838581

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