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9 marksClassical Models of the Macroeconomy

CAPE Economics Unit 2 · 2006 · Paper 2 · Question 2(b)(iii)

Using aggregate demand and aggregate supply curves to illustrate impacts in the short run.

Using aggregate demand and aggregate supply curves to illustrate your points, discuss the impacts on price level (P) and equilibrium GDP (Y) in the short run of an increase in the price of oil caused by war in the Middle East, assuming the government accommodates inflation to keep interest rates constant.

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Other parts of this question

  1. 2(a)(i)Explain the meaning of Aggregate demand.[3 marks]
  2. 2(a)(ii)Explain the meaning of Aggregate demand curve.[3 marks]
  3. 2(a)(iii)Explain the meaning of Aggregate supply.[3 marks]
  4. 2(a)(iv)Explain the meaning of Aggregate supply curve.[3 marks]
  5. 2(a)(v)Explain the meaning of Equilibrium price level.[3 marks]
  6. 2(b)(i)Using aggregate demand and aggregate supply curves to illustrate your points, discuss the impacts on price level (P) and equilibrium GDP (Y) in the short run…[9 marks]
  7. 2(b)(ii)Using aggregate demand and aggregate supply curves to illustrate your points, discuss the impacts on price level (P) and equilibrium GDP (Y) in the short run…[9 marks]
  8. 2(c)Explain how the variability of profits and expectations contribute to the instability of investment.[8 marks]

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