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Assume the Economy Is Initially in Equilibrium with Real GDP

Question 54

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Assume the economy is initially in equilibrium with real GDP equal to potential GDP and the inflation rate at its target.Use aggregate demand and aggregate supply graphs to show the short-run and long-run effects of a sudden increase in the price of oil,with the Bank of Canada following its reaction function.Explain what is happening in each graph.

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The economy is initially at equilibrium ...

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