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Country A has rich natural resources in fossil fuels and relies heavily on energ

by | Nov 22, 2022 | Economics

 

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Country A has rich natural resources in fossil fuels and relies heavily on energy exports. Suppose major pipelines transporting natural gas from country A to its neighboring country B were sabotaged, causing a surge in country B’s energy prices.
Assume that both countries’ economies were at their long run equilibrium before this incident. Use aggregate demand and aggregate supply (AD-AS) model to analyze the following four questions.
Question 29 (5 points)
In the short run, how does this event affect country B’s economy, such as overall price level, real GDP and unemployment? What is the economic term for this situation? Please briefly describe how that will be reflected in the AD-AS diagram.
Question 30 (4 points)
What could the country B’s central bank do in response to this event? Please briefly describe how that will be reflected in the AD-AS diagram.
Question 31 (4 points)
In the short run, how does this event affect country A’s economy, such as overall price level, real GDP and unemployment? Please briefly describe how that will be reflected in the AD-AS diagram.
Question 32 (3 points)
If the government of country A does not intervene, what is the long run macroeconomics outcome? Please briefly describe how that will be reflected in the AD-AS diagram.

 

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