Show how an increase in the price of oil will affect real output and price level.?

I need to show how the incrase in the price of oil will affect real output and price level in the short run using an aggregate demand and aggregate supply graph, as well as the short-run Phillips curve.





Not really sure if I should shift demand or supply leftward, and I don't know which way to shift the Phillips curve.


Need help! Thanks.Show how an increase in the price of oil will affect real output and price level.?
The price of oil is a classic example of a supply shock in these sorts of models. They want you to think of oil as a key input to the economy. With less oil, ';full employment GDP'; is less, but the same amount of money is in the economy. Thus, the price level should rise. In the AS-AD framework, this means the AS curve shifts up and to the left, as the price level will be higher at each level of GDP.





The new SR equilibrium will have a higher price level and lower output. Lower output, according to Okun's law, leads to more unemployment. Thus, for the Phillips curve shifts up and to the right as you have more inflation at every level of unemployment.

mascara