題組內容

2. A sky rocketing oil price causes 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 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. Use the aggregate demand–aggregate supply model to answer the following.

(a) Describe the short-run impact of the adverse supply shock on the level of prices and output in each country. (10%)