Describe the short-run impact of the adverse supply shock

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Reference no: EM13154820

An oil cartel effectively increases the price of oil by 100 percent, leading to an adverse supply shock in both Country A and Country B. Both countries were in long-run equilibrium at the same level of output and prices at the time of the shock. The central bank of Country A takes no stabilizing-policy actions. After the short-run impacts of the adverse supply shock become apparent, the central bank of Country B increases the money supply to return the economy to full employment.

a. Describe the short-run impact of the adverse supply shock on prices and output in each country.

b. Compare the long-run impact of the adverse supply shock on prices and output in each country.

Reference no: EM13154820

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