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Macroeconomic Effect of
Increase in Oil Price LAS SAS-2 Price Level SAS-1 SAS-0 AD-2 AD-1 AD-0 Real GDP LAS SAS-1 Price Level SAS-0 AD-1 AD-0 Real GDP LAS SAS-1 Price Level SAS-0 AD-0 Real GDP
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Macroeconomic Effect of
Increase in Oil Price Inflation due to the Oil Embargo, 1970’s Inflation LAS SAS-1 Price Level SAS-0 AD-1 AD-0 Stagflation Real GDP LAS SAS-1 Price Level SAS-0 AD-0 Real GDP Fed: pumped money into the economy Government: increased spending, tax cuts
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Macroeconomic Effect of
Increase in Oil Price Oil Price Crisis, 1980’s Stagflation LAS SAS-1 Price Level SAS-0 oil price fall is required adjustment takes time AD-0 Real GDP Fed: no policy action Government: no policy action
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Macroeconomic Effect of
Increase in Oil Price Recession in and Subsequent Expansion LAS-90 LAS-98 IT, biotechnology boom SAS-98 AD-98 SAS-91 AD-91 LAS-90 SAS-91 Price Level SAS-90 AD-90 AD-91 Real GDP
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