11-7. As in Problem 11-6, suppose that there is a temporary,
| 11-7. As in Problem 11-6, suppose that there is a temporary, | ||||||
| but significant, increase in oil prices in an | ||||||
| economy with an upward-sloping SRAS curve. In | ||||||
| this case, however, suppose that policymakers | ||||||
| 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? (See page 240.) | ||||||
| if we want to keep GDp unchanged, then we must increase AD | ||||||
| when oil prices rise AS shifts upwards, so that GDP falls and price rises. | ||||||
| if we want to get GDP back to old levels then we shift AD upwards as shown | ||||||
| to increase AD we need to increase quantity of money in circulation. | ||||||
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