(Solved): In the graph, the economy is in long-run equilibrium at point A. Now, assume that there is an unex ...

In the graph, the economy is in long-run equilibrium at point A. Now, assume that there is an unexpected increase in the price of oil. 1.) Use the line drawing tool to show the resulting short-run equilibrium on your diagram. Label any new aggregate demand or aggregate supply curve as \( \mathrm{AD}_{2} \quad \mathrm{SRAS}_{2} \) or \( \mathrm{LRAS}_{2} \) as appropriate. 2.) Use the point drawing fool to locate the new short- run equilibrium point. Label this point B. Carefully follow the instructions above, and only draw the required objects. In the new short-run equilibrium, the unemployment rate is the unemployment rate in the initial equilibrium prior to the increase in the price of oil. Which of the following best explains how and why the economy will adjust back to long-run equilibrium? A. Aggregate demand will increase, restoring the original equilibrium price and quantity. B. Aggregate demand will decrease, restoring the original equilibrium price and quantily. C. Short-run aggregate supply will increase (shift rightward) as the recession makes firms and workers willing to accept lower wages and prices. D. Short-run aggregate supply will decrease (shift leftward) as firms and workers adjust to the new, higher price level. After the adjustment of aggregate supply is complete, the economy returns to equilibrium A. at point \( \mathrm{A} \). B. at a point lower than (i.e., south-east of) \( A \). C. in between points \( \mathrm{A} \) and \( \mathrm{B} \). D. at point B. When the economy returns to long-run equilibrium again, A. the unemployment rate will be the same, but real GDP will be lower and the price level higher compared to the initial equilibrium value prior to the increase in the price of oil. B. real GDP and the unemployment rate will be the same but the price level will be higher compared to the initial equilibrium value priar to the increase in the price of oil. C. real GDP, the unemployment rate, and the price level will be the same as the initial equilibrium values prior to the increase in the price of oil. D. real GDP will be lower and the unemployment rate and the price level will be higher compared to the initial equilibrium value prior to the increase in price of oil.