6. Economic fluctuations II The following graph shows the short-run aggregate supply curve (AS), the aggregate demand curve (AD), and the long-run aggregate supply curve (LRAS) for a hypothetical...

Extracted text: 6. Economic fluctuations II The following graph shows the short-run aggregate supply curve (AS), the aggregate demand curve (AD), and the long-run aggregate supply curve (LRAS) for a hypothetical economy. Initially, the expected price level is equal to the actual price level, and the economy is in long-run equilibrium at its LRAS of $80 billion. Suppose war in the world's main oil-producing region sharply reduces the world oil supply, causing oil prices to rise and increasing the costs of producing goods and services in this economy. Adjust the appropriate curve or curves on the graph to reflect the increase in production costs in the short run.. Note: For simplicity, assume no impact of higher oil prices on LRAS. 140 LRAS 130 AS AD 120 110 AS hp W. 85°F Mostly cloud EVEL


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